Crisis-hit Iranian rial awaits buyers in Pakistani market

KARACHI: Iranian rial lost charm in Pakistani currency market after the US restored sanctions with exchange companies and money changers wanting to sell it ‘rock bottom’ levels but absent are the buyers' appetite, analysts said on Thursday.  

Couple of days back the Iranian currency could be easily converted, and after paying Rs2,100 one could easily get 100,000 toman – commonly known as Irani rial – but now as exchange companies or money changers are willing to sell it at Rs1,500 for 100,000 toman buyers are stepping back. “Following this sellers and buyers are totally absent from the market and the neighbouring country’s currency has plunged sharply in the global market,” an analyst said.

Zafar Paracha, general secretary of Exchange Companies Association of Pakistan said the Iranian currency fell as the US President Donald Trump withdrew from the deal and imposed sanctions on Iran, which sent ripples in the global currency market.

“Iranian rial buying turned significantly weak here in the local currency market after the United States announced to leave from a deal on Iran’s nuclear program and imposed new sanctions,” Paracha said. “There is almost no buying as Iranian currency fell to a record low against the dollar.”

Some traders expect Pakistan’s imports from Iran will become expensive due to rial plunge against the dollar. Banks are fearful of handling direct trade payments with Tehran. Presently, the trade payments between the two countries are being settled through Asian Clearing Union, instead of dollars.

Analysts, however, said the move is unlikely to have any major impact on Pakistan, which has very low level of trade with Iran. Trade between Pakistan and Iran decreased to $432 million in 2010/11 from $1.32 billion in 2008/09 after western powers imposed sanctions on Tehran aimed at halting a nuclear program.

Most of the sanctions were lifted in January 2016 in return for Iran complying with a deal to curb its nuclear ambitions. Currently, traders are selling 10 million rial at Rs15,000/16,000. However, the same amount of the Iran’s currency was being sold at Rs25,000 before the US announced the decision.

A leading trader said the impact came on Thursday as usually the reaction arrived after almost 24 hours whereas on Wednesday in global market Iranian currency sharply slid. Malik Bostan, president of Forex Association of Pakistan said the currency in domestic market plunged 30 percent over the US decision. “The reaction was in line with our thoughts following the President US Donald Trump decision to back off from the nuclear deal,” he added.

The Iranian rial plunged to a record low against the US dollar in the free market after US President decision fuelled fears of an economic crisis in Iran. The dollar was being offered for as much as 75,000 rials compared to around 65,000 just before Trump announced his decision on Tuesday night, according to foreign exchange website Bonbast.com, which tracks the free market.

The currency has been sliding for months because of a weak economy, financial difficulties at local banks and heavy demand for dollars among Iranians who feared a pullout by Washington from the nuclear deal, and renewed US sanctions against Tehran, could shrink the country’s exports of oil and other goods.

The rial has tumbled from around 57,500 at the end of last month and 42,890 at the end of last year — a freefall that threatens to boost inflation, hurt living standards and reduce the ability of Iranians to travel abroad.

In an effort to halt the slide, Iranian authorities announced last month they were unifying official and free-market exchange rates at a single level of 42,000, and banning any trade at other rates under the threat of arrest.

Pakistan and Iran aim to increase annual trade volumes between the two countries to $5 billion by 2021. “In the five years… we have aimed at boosting our bilateral trade to the level of US Dollars five billion by 2021,” former prime minister Nawaz Sharif said during a meeting with Iranian President Hassan Rouhani in Islamabad two years back. “More land routes for trade on our border, trade exhibitions, industrial and agricultural cooperation and mutual recognition of standards will boost trade.”