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Iran scrambles amid 'economic war'

Sep 09 2012 02:09

Tehran - Iran's currency was on Sunday sliding to a new record low against the dollar, with the central bank saying it was trying to manage the plunge amid an "economic war with the world."

Street traders were exchanging one dollar for 23,710 Iranian rials, according to several specialised websites with real-time rates and one trader reached by telephone.

That represented a depreciation of more than 3% since Saturday and more than 8% since last Wednesday, when President Mahmoud Ahmadinejad admitted on state television that Western sanctions were causing "problems" in exporting oil and international financial transactions.

The latest street rate was nearly double the fixed, official rate of 12,260 rials that the government reserved for its agencies and a few privileged businesses.

Iran's rial has lost around half its value this year. It plummeted in January after the European Union and United States announced draconian sanctions that came into effect in July.

Although authorities have in recent months intervened to stop the slide - even briefly at one point trying to impose a cap on the rate -the rial has returned to shedding value.

The depreciation has added to inflation, which the central bank puts at 23.5% but which outside observers say is much higher. Food and imported goods have become much more costly.

Market uncertainty has been exacerbated by bellicose rhetoric from Israel, the Middle East's sole though undeclared nuclear weapons state, which has threatened air strikes against Iran's nuclear facilities.

"The central bank cannot systematically lower the exchange rate, but we have attempted to control it," Central Bank chief Mahmoud Bahmani told reporters, the ISNA news agency reported.

"Our situation is one of war. We are fighting an economic war with the world," he said.

Iran's authorities have vowed not to cede to the sanctions pressure, saying they will maintain their nuclear activities they insist are purely civilian in nature.

EU foreign ministers meeting in Cyprus on the weekend said they were considering imposing further sanctions on Iran, voicing frustration at negotiations with the Islamic republic that have all but stalled.

The so-called P5+1 group comprising the five permanent UN Security Council members plus Germany suspect that Iran may be trying to develop a nuclear weapons breakout capability.

The UN Security Council has imposed sanctions of its own to press Iran to curb its nuclear activities.

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