Euro overtakes dollar in Iran foreign reserves

The euro has overtaken the dollar as the main currency of Iran’s foreign reserves, the country’s deputy central bank chief said.

“The weight of the dollar has weakened considerably in our portfolio in favour of the euro and other currencies,” Hossein Ghazavi said in an interview in Jordan.

“Our estimation is that the euro in the midterm will grow stronger than the dollar and it’s logical to accord greater weight to the euro than the dollar.”

President Mahmoud Ahmadinejad last month ordered Iran’s foreign currency reserves to be switched to euros. The dollar has declined after the US widened its budget deficit to bail out banks and cushion the impact of the financial crisis on the economy.

“The dollar is entering a period of seasonal weakness,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “Asian central banks continue to buy the euro.”

Iran’s currency reserves have surpassed $100 billion, Ghazavi said. He declined to say how much of that is currently held in dollars or euros.

Political tension between Iran, which has the second- largest oil reserves after Saudi Arabia, and western countries led by the US have increased as the Islamic republic pursued uranium enrichment activities as part of its nuclear program, and quashed street protests triggered by the disputed re-election of Ahmadinejad in June.

Iran’s economy has been hit by the decline in oil prices from a peak of $147 a barrel in July last year. The Persian Gulf country needs a price of at least $85 to stop running budget deficits, the International Monetary Fund says.

Crude is currently trading at about $75 a barrel, up from a low of $34 in December.

Iran’s inflation rate will probably keep falling in the coming four months, Ghazavi said. It dropped to 9.3 percent in the month of Shahrivar which ended Sept. 22, the 11th straight monthly decline.

The average rate for 2009 will be about 20 percent, down from more than 25 percent last year, he said.