Rewritten Title: Geopolitical Winds and Economic Fundamentals: A Forecast for Iran’s Currency
Article:
A Period of Correction After Market Turbulence
Following two months of significant volatility in September and October, Iran’s foreign exchange market has entered a corrective phase for over 20 days, according to economic analyst AmirMohammad Golvani. This period of relative stabilization comes after the exchange rate peaked at over 118,000 Tomans in early October. The currency had begun September at a level above 90,000 Tomans.
Political Risk as a Primary Driver
Golvani identifies heightened political risks alongside increased market demand—driven by commercial, speculative, and non-commercial needs—as the main factors behind the currency’s sharp appreciation over the past two months. He specifically highlighted the impact of international political developments, noting that the activation of the so-called “snapback” mechanism in early September triggered a significant market jump of approximately 10% within days. A further 10% surge occurred in early October as the situation became more certain, after which the corrective trend began.
Diplomatic Developments Ease Pressure
The analyst pointed to specific diplomatic progress as contributing to the market’s corrective phase. He cited developments such as the Cairo agreement and a joint statement from China and Russia, in which the two nations declared they would not recognize certain international sanctions against Iran. “This trend is completely natural,” Golvani stated, “because in short-term fluctuations, expectations and psychological factors play a much more important role in shifting the exchange rate.”
Long-Term Outlook Tied to Economic Fundamentals
While short-term sentiment is swayed by politics, Golvani emphasized that medium to long-term currency valuation is determined by core macroeconomic fundamentals. These include the surplus growth of liquidity compared to economic growth, the trade balance, and the balance of payments, which ultimately define the currency’s path.
A New Floor for the Currency?
In the current climate, Golvani sees little expectation for the exchange rate to fall back to around 100,000 Tomans. He suggests that the current rate, which has recently fluctuated within a range of 6,000 to 7,000 Tomans, could be considered a price floor for the currency in the second half of the current Iranian year. He clarified, however, that this outlook could change “if a serious opening occurs in the country’s political and geopolitical atmosphere, reducing the shadow of political risks over Iran’s economy.”
Structural Challenges Remain
The economist concluded on a cautionary note, stating that even with a complete resolution of political issues, the underlying economic challenges persist. As long as the economy contends with inflation exceeding 40%, excess liquidity growth, challenges in the foreign exchange balance, and a significant increase in capital outflows, the long-term trend of a weakening national currency will, unfortunately, likely continue.