One of the most effective factors influencing Iran’s economy and also stock market is the value of Iranian Rial against other currencies such as Dollar, Euro and etc. A large part of the Iranian economy has always been influenced by the exchange rate and its fluctuation will affect the rate of inflation. This fact is also true in Iran’s capital market: Chemical industries, Base metals, metal ores, etc which are directly influenced by the exchange rate and they comprise the largest share of the market. These industries cover 22.63 percent, 11.04 percent, 4.53 percent of the total market value, respectively, and their products and raw materials are affected by international prices and the exchange rate. Now considering the importance of this element, in this article the outlook for the year ahead will be reviewed:
Presently, there are two currency exchange rates in Iran: 1) the official exchange rate 2) market exchange rate. The mechanism for determining the foreign exchange rate in the official market is defined and executed by the Central Bank of Iran. The foreign exchange rate in the market is also determined by the supply and demand mechanism. Currently, in the market the USD/IRR is equal to 38,500 Rials, while the official exchange rate of USD/IRR is equal to 32,364 Rials. In the aftermath of the Comprehensive Plan of Action, officials announced that they will unify these rate very soon however until now it hasn’t happened. During 2016, statistics regarding non-oil imports and exports (including petrochemical products) were very close and the trade balance was at a balanced level. This is while Iran’s oil exports has experienced an increasing trend and has reached the level of 2.4 million barrels per day, which will result the total trade balance of the country to reach a desired level. It is crucial to note that smuggling of goods is very high in Iran, exceeding the level of 16 billion Dollars, which can decrease the trade balance to zero. Considering the above mentioned elements it seems that according to the purchasing power parity theory the exchange rate will increase only by an amount equal to the inflation rate. However, this fact can be different vis-à-vis the official foreign exchange rate. In case of unification of the exchange rate, the official exchange rate will experience a soar in price and can jump to levels around 40,000 Rials. However, different experts have different point of views about this rate and some predict lower price levels. There are diverse views regarding the time frame for unification of exchange rate and no time frame has been announced. However, bearing in mind the forthcoming presidential elections, it appears that the unification of the exchange rates will take place after Ordibehesht in 1396(April-May 2017). But what will be the outcome of this unification? Will it result in soaring inflation? A look at the allocation of official exchange rate to importing items clarifies that many of these items are purchased with exchange rate in the market and are priced this way. As a result, in case of a strong increase in the foreign exchange rate we will witness a small effect on the inflation rate. In contrast, considering the purchasing power parity theory, the exchange rate at the market will experience a small growth and in turn will result in small increase in the inflation rate.