Iran tries to stem currency fall

4 Oct 2012, 6:23 am   -   Source: AAP
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In a push to stop the plunge in Iran's currency police in Tehran have threatened merchants who closed their shops in the city's main bazaar.

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Police in Iran have threatened merchants who closed their shops in Tehran's main bazaar and launched crackdowns on footpath money changers as part of a push to halt the plunge of the country's currency, which has shed more than a third its value in less than a week.

The measures on Wednesday underscore the serious concern by officials facing one of the most potentially destabilising scenarios, which has been partly blamed on the fallout from Western sanctions over Tehran's nuclear program.

Public anger has mounted over a punishing combination of a falling currency and rising prices, which have put some staples such as chicken and lamb out of reach of many low-income Iranians.

The shrinking rial also has rekindled bitter internal political feuds between President Mahmoud Ahmadinejad and his powerful rivals, who claim the crisis has also been fed by misguided government monetary policies.

Iran's currency hit a record low of 35,500 rials against the US dollar on Tuesday on the unofficial street trading rate, which is widely followed in Iran. It was about 24,000 to the US dollar a week ago and close to 10,000 rials for $US1 as recently as early 2011.

Exchange houses were closed on Wednesday and currency websites were blocked from providing updates.

In a potentially serious showdown, merchants appeared to stage widespread closures in Tehran's bazaar, the traditional business hub in Iran's capital. The sprawling bazaar has played a critical role in charting Iran's political course - leading a revolt that wrung pro-democratic concession from the ruling monarchy more than a century ago and siding with the 1979 Islamic Revolution.

The rial's sharp decline is attributed to a combination of Western sanctions and government policies - such as fuelling inflation by increasing the money supply while also holding down bank interest rates. That prompted many people to withdraw their rials to exchange for foreign currency over the past months.

On Tuesday, Ahmadinejad insisted Iran's economic underpinnings were sound, but blamed the rial's tumble on "psychological pressures" from the sanctions and currency speculators.

He described the sanctions as part of a "heavy battle" that has succeeded in driving down oil exports "a bit," but he gave no precise figures. Some oil analysts estimate exports have fallen by more than 30 per cent since July, when the 27-nation European Union halted purchases of Iranian crude.

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