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Arabs Divided on Whether to Dump Dollar; Saudi Stick to Dollar, Syria
Doesn't-
Via NY Transfer News Collective * All the News that Doesn't Fit
sent by GATA - Oct 28, 2007
http://www.gata.org/
Reuters via Yahoo - Oct 27, 2007
http://in.news.yahoo.com/071027/137/6mhy3.html
Dollar's fall amid interest rate cuts distresses Arab countries
Rules Review FX Union Date As Fed Rate Cut Splits Gulf
By Souhail Karam
Reuters
JEDDAH, Saudi Arabia -- Gulf Arab rulers will decide in December
whether to delay monetary union among six oil producers that are
divided over how to respond if more U.S. interest rate cuts test
currency pegs to the sliding dollar.
Gulf finance ministers and central bankers met in Saudi Arabia to
review the 2010 deadline for creating a single currency in the
world's top oil-ex****ting region -- a timetable all six say will
be difficult if not impossible to meet.
With a widely-anticipated delay prompting investors to bet on the
appreciation of dollar-pegged Gulf currencies, the six states agreed
to keep foreign exchange policy unchanged, although each would steer
its own course on interest rates.
"There is a margin for each state to follow monetary policies that
correspond to its domestic conditions," Hamad Saud al-Sayyari,
governor of the Saudi Arabian Monetary Agency, told re****ters after
the talks in the ****t city of Jeddah.
Oman's Central Bank Executive President Hamood Sangour al-Zadjali
echoed the position, saying: "Each country has its own economic
situation."
The International Monetary Fund said the Gulf needed monetary policy
that was consistent with dollar pegs, after the six states broke
ranks on their response to a U.S. interest rate cut last month,
raising speculation about currency revaluations.
A dollar peg "requires following monetary policy that is coherent
with that alternative, IMF Managing Director Rodrigo Rato told
re****ters after meeting Gulf Arab officials in Jeddah.
When the U.S. Federal Reserve cut rates on Sept. 18, Saudi Arabia,
Oman, and Bahrain declined to follow, opting to ride out pressure
on their currencies to appreciate rather than stoke inflation.
Inflation hit a 16-year high of 6.47 percent in Oman and a seven-year
peak of 4.4 percent Saudi Arabia in August.
Qatar and the United Arab Emirates cut some key rates along with
Kuwait, the only Gulf Arab state that does not peg its currency to
the dollar. Inflation in the UAE hit a 19-year high of 9.3 percent
in 2006 and price rises were 12.8 percent in Qatar in June.
Kuwait's central bank dropped its dollar peg in May and started
tracking the dinar's rate against a currency basket, saying dollar
weakness was fuelling inflation by making some im****ts more expensive.
Investors drove the Saudi riyal to a 21-year high after the Fed
cut, taking divergence on monetary policy as another sign that the
deadline for creating a single currency was out of reach and that
more revaluations would follow.
Analysts polled by Reuters last month were unanimous that the
deadline would not be met. UAE Central Bank Governor Sultan Nasser
al-Suweidi told a magazine this month that the timetable could slip
beyond 2015.
"We did not discuss setting a new date," Sayyari said. Gulf Arab
rulers would decide on the date at a meeting in Qatar in December
"depending on the economic situation in the region." he said.
Monica Malik, senior economist at EFG-Hermes investment bank, said
the rulers would also consider the outlook for the dollar, which
hit life lows against a basket of six currencies this month, and
has fallen 9 percent versus the euro this year.
"The U.S. dollar is structurally weak so it removes a lot of the
advantages the peg had for Gulf states," she said.
Gulf currencies strengthened again on Friday, with the Qatari riyal
gaining to its strongest since 2003, as investors bet central banks
would let exchange rates appreciate.
"There was agreement that there is no need to change the current
foreign exchange policy with consensus from all member states,"
Sayyari said.
Deutsche Bank economist Caroline Grady said Gulf states could not
simultaneously maintain currency pegs, free capital accounts, and
independent monetary policy.
"A delay would open up the scope for more moves in these currencies,"
said Grady, who expects the UAE to revalue its dirham this year.
Deutsche expects the Fed to cut rates by 25 basis points at its
next meeting on Oct. 30-31, taking the gap between interest rates
on the Saudi riyal and U.S. dollar to 1 percentage point for the
first time since 2002, Grady said.
Saudi Arabia's benchmark repo rate is 5.5 percent and the Fed Funds
rate stands at 4.75 percent.
The Fed is expected cut its benchmark this year either at the Oct.
30-31 meeting or in December, a Reuters poll of economists showed
on Oct. 15.
The monetary union deadline began slipping when Oman opted last
year not to join by 2010, saying it did not want to meet the spending
curbs agreed with its neighbours. Kuwait blamed the delay for a
decision to drop its peg to the dollar in May.
***
Arab News, Jeddah, Saudi Arabia - Oct 28, 2007
http://www.arabnews.com/?page=6§ion=0&article=102925&d=28&m=10&y=2007
No Change in Saudi Riyal's Peg to Dollar
By P.K. Abdul Ghafour and Fahd Al-Baqami
JEDDAH, Saudi Arabia -- The Saudi riyal's peg to the US dollar will
remain unchanged as GCC countries yesterday unanimously agreed to
the continuation of the present exchange rate policy, Hamad Al-Sayari,
governor of the Saudi Arabian Monetary Agency (SAMA), announced.
Speaking to re****ters at the end of a joint meeting of GCC finance
ministers and central bank governors, Sayari said GCC leaders would
decide during their December summit whether they would be able to
meet a 2010 deadline for monetary union.
"Our meeting discussed the issue of the Saudi riyal's peg to the
American dollar and all members unanimously agreed to the continuation
of the present exchange rate policy without making any change at
present," the Saudi Press Agency quoted the SAMA chief as saying.
Sayari, who led the Saudi delegation at the meeting on behalf of
Finance Minister Ibrahim Al-Assaf, said the GCC countries would
regularly monitor the dollar's exchange rate to take appropriate
decisions. The official said this when asked about the GCC's stance
if the value of the dollar were to decline further.
Sayari's statement ended speculation that the riyal-dollar peg would
be lifted as part of efforts to contain growing inflation in the
Kingdom. Kuwait's central bank parted company with its GCC partners
in May this year when it ended the dinarbs peg to the US dollar and
linked it to a basket of currencies.
Investors were eagerly watching the Jeddah meeting of top financial
and monetary policymakers in the six-member Gulf Cooperation Council
that groups Saudi Arabia, Kuwait, Qatar, Bahrain, Oman, and the
United Arab Emirates.
Sayari said the ministers authorized technical committees to re*****s
the situation on the launch of the monetary union and submit their
findings to the upcoming GCC summit in Doha.
"We have come across some difficulties in fixing the rates. The
situation will be re*****sed and the observations submitted to the
Gulf summit," Sayari said when asked about the timeframe for the
launch of the monetary union.
GCC Secretary-General Abdul Rahman Al-Attiyah said the meeting
discussed how to overcome obstacles to its planned single currency
launch and alternatives should the 2010 deadline be missed.
Proposals include postponing the deadline or launching the scheme
in 2010 for those states that are ready and allowing others to join
later.
The single currency plan has met technical, legislative and fiscal
hurdles. Homud Al-Zidjali, Oman's central bank governor, announced
in May that the sultanate would not join the scheme. "Our decision
is not to participate in the Gulf monetary union ... because we do
not want to restrict our monetary and fiscal policies at present,"
Zidjali said.
The International Monetary Fund (IMF) said Gulf monetary policy
needed to be consistent with dollar pegs, after the six states broke
ranks on their response to a US interest rate cut last month, raising
speculation about currency revaluations.
"I think the relation****p with the dollar is one alternative," IMF
Managing Director Rodrigo Rato told re****ters after meeting the GCC
finance ministers and central bank governors. "That alternative
requires following a monetary policy that is coherent with that
alternative," he said.
Rato commended the role of Saudi Arabia and other GCC countries in
stabilizing the world oil market by increasing production to meet
growing demand.
***
Bloomberg via Khaleej Times - Oct 28, 2007
http://www.khaleejtimes.com/DisplayArticleNew.asp?xfile=data/business/2007/October/business_October654.xml§ion=business&col=
Syrian Pound 'Stabilizing' After Dropping Dollar Peg
Bloomberg News Service
DUBAI -- Syrian central bank Governor Adib Mayaleh said the local
currency is "stabilising" since the eastern Mediterranean state
became the second Arab country to end its peg with the dollar.
"This is stabilising the currency the most in more than 20 months,
despite major political pressures that we suffer from," Mayaleh
said on Friday in a telephone interview from Damascus.
"As soon as we announced the de-peg, we started to see an improvement
in the exchange rate."
Mayaleh said on June 4 Syria would follow Kuwait and end the Syrian
pound's link to the dollar and peg it to a broader range of currencies
to curb rising im****t costs and inflation. The currency was dragged
lower against the euro by a 10 percent slide in the dollar last
year. Kuwait switched to a currency basket in May.
"It certainly reduced the pressure on the currency," said Jon
Harrison, an emerging-market currency strategist at Dresdner Kleinwort
in London. "There is a lot of pressure on currencies to de-peg and
we have seen Kuwait and Syria do it, so that adds to the pressure
on the others."
The Syrian pound has strengthened 2.1 percent against the dollar
since June and has weakened to 69.56 per euro yesterday from 66.17
on Jan. 6, according to central bank rates.
Record levels of inflation in Saudi Arabia, the United Arab Emirates,
Qatar, and Oman have increased speculation that the countries will
have to change their dollar pegs. The central bank governors of
Saudi Arabia, the UAE, Qatar, Oman, and Bahrain have stated that
they have no plans to revalue.
*
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