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Saudi Arabia not to review money peg

Saudi Arabia is not considering or revaluing its currency or moving away from its dollar peg, Finance Minister Ebrahim Al Assaf said here yesterday.

  • By Babu Das Augustine, Banking Editor
  • Published: 00:50 October 21, 2007
  • Gulf News

Washington: Saudi Arabia is not considering or revaluing its currency or moving away from its dollar peg, Finance Minister Ebrahim Al Assaf said here yesterday.

Amid speculation that the Kingdom will abandon its currency peg due the dollar's steep fall, the Saudi minister told Washington-based Emerging Market magazine. "The riyal's exchange regime has served, and continues to serve, the economy so well and there is no need for any change at this time."

The riyal has been pegged to the dollar since 1986, at 3.75 to the dollar. But in late September hedge fund buying in the forward market, on speculation about a possible revaluation, pushed the Saudi currency to a 21-year high of 3.735.

The minister also said GCC finance ministers and central bank governors will meet at the end of this month to discuss various issues, including the possibility of pushing the deadline for GCC monetary union.

"There are clear benefits for all GCC members from monetary union. But GCC countries realise that some members may not be in a position to join the union at its inception and that they have shown flexibility for those members to join at a later date."

GCC finance ministers and central bank governors will meet immediately after the annual meeting for talks, "where we will discuss these issues, including the possibility of pushing the timetable further down the road," he said.

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Senior members from the Qatari and Omani delegations told Gulf News that there are no immediate plans to change their currency pegs to the dollar, but the UAE Central Bank governor was not available for comment.

Apart from the persistent weakness of the dollar, the news that the six Gulf countries cannot meet their 2010 deadline for monetary union had triggered speculation that some Gulf countries, including the UAE, Qatar and Saudi Arabia, would revalue their currencies.

According to recent data, Qatar's inflation rose to 14.8 per cent year-on-year in the first quarter before declining to 12.8 per cent in the second quarter. The country will have a problem containing rent inflation until additional housing becomes available, but that is not expected until 2009. In the UAE, official inflation reached 9.3 per cent in 2006 and was largely driven by the rent component, closely followed by soaring food prices.

"The average cost-of-living increases were the highest in the UAE, Kuwait and Qatar, and have outpaced annual wage gains by more than 14 per cent, 10 per cent, and 9 per cent, respectively, signalling an acute deterioration of local buying power," said Antonina Antonova, an analyst with Societe Generale Asset Management.

The large expatriate workforce living in the Gulf is losing in the range of 20 to 30 per cent of their earnings to inflation and exchange rate losses.

Despite clear indications from international agencies such as the IMF that the dollar is still overvalued and could fall further, Gulf governments and central banks believe that inflation should be dealt with fiscal policy measures rather than monetary policy and exchange rate adjustments.

"I think it is fiscal policy planning, expenditure by the government that has to be phased in a way that will have housing units before you have the influx of people who will do the development projects," Sultan Nasser Al Suwaidi, the UAE Central Bank governor said earlier this month.

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