Iran’s currency hits all-time low as EU prepares more sanctions

Economy

Iran’s currency hits all-time low as EU prepares more sanctions

Published

1 month ago

February 20, 2023

Harry Miller

Iranian rial crosses 500,000 to the US dollar as prices of food and essentials continue to rise.

Tehran, Iran – Iran’s national currency has hit an all-time low as the European Union prepares to impose new sanctions on the country in the midst of ongoing tensions with the West.

The United States dollar surpassed a rate of 500,000 rials in the open market on Monday, breaking an important psychological barrier that could signal further depreciation of the embattled national currency in the foreseeable future.

To put that number into context, one US dollar changed hands for less than 40,000 rials less than five years ago, when the US unilaterally abandoned Iran’s 2015 nuclear deal with world powers and imposed punishing sanctions. The rate was less than 300,000 at the start of last September.

Monday’s currency free fall came as Josep Borrell, the EU’s foreign policy chief, and other bloc officials announced the imminent imposition of another round of sanctions.

Like previous rounds, the measures are expected to target Iranian officials and entities for their response to deadly protests that swept Iran from mid-September. Tehran accuses the West of being behind the unrest.

The EU, along with the US, has in recent months levelled several rounds of sanctions on Tehran for allegedly supplying drones to Russia for its war on Ukraine. Iran and the EU have also clashed over the possibility of designating the Islamic Revolutionary Guard Corps a “terrorist” organisation.

Talks to restore the 2015 nuclear deal also remain deadlocked, with Western parties repeatedly calling on Iran to increase its cooperation with the International Atomic Energy Agency.

Bloomberg reported on Sunday that the global nuclear watchdog has found uranium enriched to 84 percent in Iran, its highest-ever rate. Tehran said finding “particles” does not mean that Iran is enriching beyond the 60 percent it declared before while maintaining that it does not seek a nuclear weapon.

Gov’t response amid inflation

In response to the fast-depreciating national currency, central bank Governor Mohammad Reza Farzin announced on Monday that a new centre to exchange currencies and gold will be launched soon to “discover currency and gold rates based on the economic realities of the country”.

Farzin’s predecessor, Ali Salehabadi, had been sacked in late December after the rial slumped to more than 440,000 against the US dollar on the open market.

Authorities have repeatedly said the establishment’s enemies are trying to derail the Iranian economy through, among other things, fabricating artificially high currency rates.

The central bank has promised to continue enforcing an artificially low rate of 285,000 per dollar for imports of essential goods like medicine to keep prices stable.

But runaway inflation continues to pressure average Iranians who are increasingly losing their purchasing power.

Prices of food and other items continue to surge as the country is nearing the end of its calendar year and Nowruz – Persian New Year – celebrations in late March, when prices traditionally see hikes amid increased demand.

Essential items like meat and onions have repeatedly been in the local news for the past few weeks as they have hit new price highs. Government officials have promised to distribute essential food items with lower prices at select stores as they pledge to control year-end prices.

Source link

Economy

Can Russia and China succeed in dethroning the dollar?

Published

10 hours ago

April 1, 2023

Harry Miller

From: Counting the Cost

Russia turns to China’s Yuan as its foreign currency of choice and supports it in trade with other countries.

Since being shut out of much of the global financial system, Russia has sought alternatives to soften the effects of Western sanctions.

It has turned to China for an economic lifeline and has been increasingly embracing the yuan.

Trade between the two countries hit a record of $190bn last year, with much of those payments made in Chinese and Russian currencies.

The two biggest geopolitical rivals of the United States want to counterbalance the dominance of the dollar worldwide.

Elsewhere, Ukraine has won the IMF’s first loan to a country at war.

Source link

Economy

Charting the Global Economy: Recovery in China Gathers Pace

Published

15 hours ago

April 1, 2023

Harry Miller

8fk]oem8pg219s085bjy8e62_media_dl_1.png Bloomberg RSS

(Bloomberg) — China’s recovery gained traction in March, showing the world’s second-largest economy is strengthening after stringent pandemic restrictions were dropped and Covid infection waves eased.

In Europe, inflation excluding food and energy costs hit a record last month, reinforcing calls from several European Central Bank officials that more interest-rate increases are needed. In the US, however, core price pressures eased in February by more than forecast, which may allow the Federal Reserve to pause rate hikes soon.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

Asia

China’s economic recovery gathered pace in March, with gauges for manufacturing, services and construction activity remaining strong, boosting the outlook for growth this year.

South Korea’s construction deals fell by a record margin in the fourth quarter as the property market cooled with rising interest rates weakening demand and inflation fueling costs.

South Korea is forecast to overtake China in spending on advanced chipmaking equipment next year in a sign of US export controls reshaping global supply chains for semiconductors.

Europe

Underlying inflation in the euro area hit a fresh high, handing ammunition to ECB officials who say interest-rate increases aren’t over yet. The rise to 5.7% in March’s core price reading, which strips out volatile items like fuel and food costs, came alongside a record plunge in headline inflation to 6.9% from 8.5% in February.

While Sweden sits between France and Switzerland in a ranking of dollar billionaires, many poorer Swedes have seen the gap between the haves and the have-nots widen dramatically in recent times. At the heart of Sweden’s woes is a dysfunctional housing market, which has not only cemented social divides, but exacerbated them.

A key gauge of US inflation rose in February by less than expected and consumer spending stabilized, suggesting the Fed may be close to ending its most aggressive cycle of interest-rate hikes in decades. Excluding food and energy, the core personal consumption expenditures price index climbed 4.6%, matching the smallest annual increase since October 2021.

Banks reduced their borrowings from two Fed backstop lending facilities in the most recent week, a sign that liquidity demand may be stabilizing. US institutions had a combined $152.6 billion in outstanding borrowings in the week through March 29, compared with $163.9 billion the previous week.

The biggest banking scare since the 2008 financial crisis will ricochet through the economy for months as households and businesses find it harder to gain access to credit. That’s the scenario facing the US after the collapse of three regional lenders, and a giant global one, over an 11-day span, according to several economists.

World

South Africa and Ghana each lifted rates by more than expected, and Thailand signaled more tightening is on the horizon. Mexico slowed its pace of hikes while Hungary’s resisted government pressure to start monetary easing. Colombia increased rates to a 24-year high and Egypt went ahead with a jumbo hike.

Bank of Japan Governor Haruhiko Kuroda changed the course of global markets when he unleashed a $3.4 trillion firehose of Japanese cash on the investment world. Now Kazuo Ueda is likely to dismantle his legacy, setting the stage for a flow reversal that risks sending shockwaves through the global economy.

Emerging Markets

President Vladimir Putin’s drive to expand Russia’s armed forces is adding to labor shortages as his war in Ukraine draws hundreds of thousands of workers into the military from other sectors of the economy. The total number taken into service is likely to have exceeded half a million, according to Bloomberg’s Russia economist Alexander Isakov.

—With assistance from Ruth Carson, Enda Curran, Alexandra Harris, Sam Kim, Masaki Kondo, John Liu, Michael MacKenzie, Reade Pickert, Chris Reiter, Zoe Schneeweiss, Mark Sweetman, Craig Torres, Alexander Weber and Anton Wilen.

Source link