DUBAI (Reuters) – The Iranian rial fell to a new low against the U.S. dollar on Sunday as a record daily death toll from COVID-19 compounded concerns over new U.S. sanctions which may block some of Iran’s medicine purchases.
The dollar was selling for as much as 312,200 rials on the unofficial market, up from 304,300 on Saturday, according to the foreign exchange site Bonbast.com.
The economic daily Donya-e-Eqtesad’s website gave the dollar rate as 310,000 up from 303,300 on Saturday.
The currency has lost about 57% of its value in 2020 as a drop in oil prices has deepened the economic crisis in the country, which also has the highest COVID-19 death toll in the Middle East. On Sunday, the daily death toll hit a new high of 251.
The United States on Thursday slapped fresh sanctions on Iran’s financial sector, penalising 18 banks to further choke off Iranian revenues as Washington ramps up pressure on Tehran weeks ahead of the U.S. election.
Analysts said the sanctions may further deter European and other foreign banks from working with Iran, even for permitted humanitarian transactions.
Iran shatters its single-day record for virus deaths, cases
For the second day in a row, Iran shattered its single-day record for new deaths and infections from the coronavirus, with 272 people confirmed dead among more than 4,200 new cases on Monday.
Like in many other countries, the spiraling outbreak in Iran reflects the government’s contradictory virus response. This month, as the daily recorded death toll reached the triple digits, authorities announced tighter restrictions for the hard-hit capital of Tehran. Recently reopened universities and schools, as well as libraries, mosques, cinemas, museums and beauty salons, shut down. On Saturday, the government mandated that all Tehran residents wear face masks outdoors and in public places, warning violators would be fined. Cabinet spokesman Ali Rabiei promised those who tested positive would be closely tracked.
Economy set for deeper contraction amid US sanctions, pandemic
Iran’s economy is being battered by heightened US sanctions that constrain oil production and exports, and rising levels of coronavirus infections in the country, with GDP expected to shrink for the third consecutive year.
For the fiscal year ending 20 March 2021, the forecast GDP decline could be as steep as 8.5%, before reversing to a 2.7% growth in the following year, according to Spain-based research firm FocusEconomics.
“The economic activity remained bleak in recent months, with the dual impact of US sanctions and a rising rate of coronavirus infectons in the country dragging on activity,” said Stephen Vogado, economist at FocusEconomics, in a research note.
Iran’s inflation jumped to 34.4% in September, up from 30.4% in August, due to supply chain disruptions and a tumbling currency, the rial.
For imports of essential goods, the rial is set at 42,000 to $1.
In view of the sharp depreciation of the rial since the US sanctions were imposed in 2018, Iran’s parliament passed a bill in May 2020 to change its basic currency unit to the toman, which is equivalent to 10,000 rials. The shift is expected to be made in two years, according to media reports.
Iran’s oil production in August remained at the previous month’s record low levels, while gasoline output was supported by shipments to Venezuela, FocusEconomics said.
Oil production in the current year is estimated to shrink to 1.9m bbl/day, half its level three years ago.
The country could face a foreign currency crisis if it fails to double current export levels in the coming years, Iran-China Joint Chamber of Commerce chairman Majid Reza Hariri told state news organization Iran Labor News Agency (ILNA).
Oil export revenues in the current fiscal year will be around $5bn, at best, due to a combination of low prices and the US sanctions, Hariri said. It is a significant whittling down of what used to be a $120bn industry in the past years.
“Faltering investment will hit the non-oil private sector, while the oil economy will suffer from falling demand,” FocusEconomics’ Vogado said.
Iran’s non-oil exports are projected to fall to $30bn, down by a quarter from the previous fiscal year, Iran-China Joint Chamber of Commerce chairman Hariri said.
Based on data from FocusEconomics, the country’s total exports in the current fiscal year are projected to contract by 16.7%, moderating from the 28.4% slump in the previous year.
US sanctions have been hurting Iran’s overall trade, with Germany and other EU countries accounting for about two-thirds or 64% of total exports.
In the six months to 20 September this year, Iran’s total trade was at more than $30bn, according to state media – the Islamic Republic News Agency (IRNA) – citing customs data.
China is its biggest market, with a 27.3% share to Iran’s total exports; while imports from the Asian giant for the six-month period stood at about $4.3bn, IRNA reported.
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