Inflation as central driver
Inflation remains the core variable shaping the rial’s outlook.
The International Monetary Fund estimates consumer price growth averaged around 42% in 2025, up from about 33% the year before. Food, rent, transport and healthcare have all recorded double-digit increases.
Such inflation differentials with trading partners mechanically weaken the currency over time. As domestic prices rise faster than those abroad, more rials are needed to buy the same foreign goods, embedding depreciation into everyday transactions.
For import-dependent sectors, the feedback loop is immediate. Iran sources large volumes of wheat, cooking oil, animal feed and pharmaceutical ingredients from overseas. A weaker rial pushes up costs for importers, who raise prices to protect margins.
That dynamic complicates efforts to stabilise the exchange rate without first breaking inflationary momentum.
Fragile growth outlook
Iran’s economic growth prospects offer limited near-term support for the currency.
The World Bank projects GDP could contract by 1.7% in 2025 and a further 2.8% in 2026, citing constrained trade, weak investment and pressure on public finances.
Oil exports remain the state’s main source of foreign exchange. Yet revenue fluctuates with global prices and the discounts applied to Iranian crude sold through non-traditional channels.
Brent crude averaged around $60 a barrel last year, well below the level economists say Iran needs to balance its budget. Lower receipts restrict the government’s ability to intervene in currency markets or boost imports that could help ease domestic shortages.
Without stronger export income or alternative inflows, foreign currency supply is expected to remain tight.
Obstacles to stability
Beyond short-term factors, analysts point to deep structural issues that cloud the rial’s medium-term outlook.
State-dominated industries, limited foreign investment, ageing infrastructure and chronic water shortages have weighed on productivity and non-oil exports. Manufacturing and agriculture struggle to generate the hard currency needed to diversify inflows.
The exchange rate regime itself adds complexity. Iran operates a multi-tier system, with subsidised rates for certain essential imports alongside the open market.
While designed to shield consumers, economists say the system distorts pricing, encourages arbitrage and undermines confidence in official rates. Businesses often default to the open market as the true signal of value, reinforcing volatility.
Reforming this structure would be politically and socially sensitive, yet without changes, the gap between official and market pricing is likely to persist.
What could alter trajectory
For the rial to stabilise meaningfully, economists say several conditions would need to converge.
Sustained disinflation would be central, requiring tighter control over liquidity growth and more predictable fiscal management. That could slow the steady erosion of purchasing power that drives dollar demand.
Improved foreign currency inflows would also be critical. That could come from higher oil revenues, growth in non-oil exports, or renewed foreign investment that brings both capital and technology.
Confidence effects matter too. Households and businesses that believe the exchange rate has found a floor are less likely to rush into dollars at the first sign of price increases.
Absent such shifts, most analysts expect the rial to remain under downward pressure, with periodic stabilisation efforts offering only temporary relief.
For now, the new record low reinforces a reality Iranians have lived with for years: the currency remains a barometer of deeper economic strains, and its future path will depend less on short-term market moves than on whether those underlying conditions begin to change.
– With input from Agencies
Justin is a personal finance author and seasoned business journalist with over a decade of experience. He makes it his mission to break down complex financial topics and make them clear, relatable, and relevant—helping everyday readers navigate today’s economy with confidence.
Before returning to his Middle Eastern roots, where he was born and raised, Justin worked as a Business Correspondent at Reuters, reporting on equities and economic trends across both the Middle East and Asia-Pacific regions.