Why does the Central Bank oppose raising the preferential exchange rate?
One clear pillar of the Central Bank’s declared policy at the present stage is not increasing the exchange rate at the Exchange Center or the preferential exchange rate during the current year.
The removal or abrupt increase of the preferential exchange rate could have severe and unintended distributional impacts on lower-income groups.
The inflationary consequence of any shift in benchmark rates is a combination of three well-known channels: cost-push, expectations, and accessibility.
Increasing the preferential exchange rate directly raises the import cost of essential goods, reaching the consumer after a short lag.
The preferential exchange rate—if accurately targeted and strictly supervised—can help temporarily stabilize the relative prices of essential commodities.
Simultaneously, announcing that the exchange rate of the Center for Exchange of Currency and Gold (Ice) or the negotiated exchange rate is around 70,000 Tomans, and that its daily fluctuations are considered reasonable and proportional to macroeconomic conditions, points to a form of governance based on a currency corridor. The existence of limited fluctuations is not a sign of instability, but rather a necessary condition for market depth; a market with no fluctuations is shallow and fragile, highly vulnerable to sudden jumps when faced with news or a large order. By emphasizing no intention of fundamental changes to this rate, the policymaker effectively stabilizes a mechanism and process for economic agents so that FX planning, contract risk hedging, and export-import pricing can be conducted within an expected range.
However, no economist ignores the structural side effects of multiple exchange rates. A persistent gap between the preferential rate and the negotiated rate, if unregulated and prolonged, can fuel rent-seeking incentives along the import supply chain, distort relative commodity prices, and ultimately lead to reduced productivity and slower investment in domestic production. On the other hand, a hasty transition to a unified exchange rate in an environment with high structural inflation—where precise and transparent compensatory tools for vulnerable income groups are not yet ready—could easily result in adverse welfare shocks. In reality, the policymaker must define the transition path as a sequence rather than a single jump, tied to a clear set of conditions: a sustained reduction in liquidity growth and control over bank balance sheets, fiscal discipline and curbing hidden deficits, improving the balance of payments, ensuring transparency in export revenue repatriation, and establishing currency risk-hedging tools for enterprises. The higher the degree to which these conditions are met, the more feasible it becomes to narrow the rate gap at a lower social cost.
One clear pillar of the declared policy at present is not increasing the preferential exchange rate during the current year. The economic meaning of this statement is the stabilization of an anchor operating through the import cost of heavily weighted items in the consumer basket, which in the short term can prevent an escalation of the first-wave passthrough of exchange rate increases into consumer prices.
Although the 28,500-Toman rate is open to debate from the perspective of long-term efficiency and competitive signaling, under current inflationary conditions it acts as a shock absorber. Removing it or abruptly raising it could have severe, unintended distributional impacts on lower-income deciles. Macroeconomic data—ranging from point-to-point inflation and budget trends to the status of reserves and the gap between official and negotiated rates—will determine the scope for a gradual, rule-based adjustment of this rate for the coming year.