Last week Iran announced that it would cut imports of non-essential goods and introduce some austerity measures – a clear sign that western sanctions have created a real shortage of foreign exchange in the country.

Measures taken by the monetary authorities have so far failed to reverse the steep fall in the rial, which has lost more than half its value against the dollar since the beginning of the year. Thus far they have only managed to stabilize the currency at a level of around $1=IR34,000 on the free market, a slight appreciation from the record low of $1=IR37,500 hit at the beginning of October (MEES, 5 October). (CONTINUED - 273 WORDS)