Business | Banking
Central Bank fires warning shot at speculators on dinar
Kuwait's central bank said that it may take unspecified measures to curb speculation in its dinar, firing a warning shot as speculators buy the currency in the hope that the oil producer may revalue.
- Reuters
- Published: 00:00 March 30, 2007
Kuwait City/Dubai: Kuwait's central bank said that it may take unspecified measures to curb speculation in its dinar, firing a warning shot as speculators buy the currency in the hope that the oil producer may revalue.
"Having huge inflows of capital is increasing the burden on us," Nabeel al-Mannae, deputy governor of the Kuwait central bank, said in a telephone interview with Reuters on Wednesday. "We will make sure they won't make money on our currency."
Investors had been buying dinar forwards after Kuwaiti officials said they may revalue the unit, which, like other Gulf Arab currencies, is pegged to the dollar.
The central bank may "take necessary measures so that there will be no benefit from such speculative behaviour", Mannae said in the earlier statement.
Unsatisfied
The bank is "unsatisfied with the increase in the volume of dinar purchases that do not have underlying commercial foundation and which are indicative of accumulation of speculative long dinar position", Mannae said in the statement.
In the interview, Mannae declined to be more specific about the possible measures, though he ruled out capital controls. "We say absolutely we will not use capital controls," he said.The central bank could act as early as Sunday, he said. The central bank is closed on Thursday and Friday for the weekend, and again on Saturday for a public holiday. Kuwait allowed its currency to appreciate 1 percent within a 3.5 per cent trading band against the dollar in May, citing rising euro and other non-dollar import costs.
Second highest
The euro has appreciated almost 13 per cent against the dollar since January 1, 2006, helping to fuel inflation in Gulf Arab oil producers. Crude oil is priced in dollars.
HSBC estimated Kuwait's 2006 inflation at three per cent, its second highest annual rate in at least the past five years.
Sky-high values on separate revaluation
Investors betting that Kuwait and the UAE would revalue separately from their Gulf peers pushed the UAE dirham to an 11-month high and the dinar to a 10-week high in February.
Dorothee Gasser, an economist at ING Bank in London, said US. funds were among buyers of the dinar. "You can't blame the funds as Kuwait had mulled revaluation in December and they did revalue in May last year," Gasser said.
Speculation about a region-wide revaluation reached fever pitch earlier this year after the UAE, the Arab world's second largest economy, said Gulf states could decide at a meeting in Saudi Arabia next week whether to keep or change their exchange rate regime.
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