Arab Gulf States Say Not Concerned Over Dollar Decline
Zawya Dow Jones News
Tuesday, Nov 09, 2010
(This item was originally published Monday.)
By Summer Said
Of ZAWYA DOW JONES
KUWAIT CITY (Zawya Dow Jones)--Gulf Arab states are brushing off speculation that countries in the region may consider depegging their currencies from the sliding U.S. dollar, with officials saying Monday and over the weekend that they aren't concerned over the impact of the greenback's fall on their economies.
A steep decline in the dollar's value against major currencies has given rise to speculation that hydrocarbon-rich Gulf Cooperation Council, or GCC, states--all of which peg their currencies to the greenback except Kuwait--may be pushed to revalue their currencies as income from dollar-priced oil exports is being eroded and inflationary pressures increase on the back of higher import prices, in particular for commodities such wheat.
Hamood Sangour Al Zadjali, executive president of the Central Bank of Oman, said Monday that the central bank there "remains fully committed to the fixed peg," which "provides the country with a stable exchange rate which helps in promoting investment, growth and diversification of the economy."
A weaker dollar also helps keep oil prices high and protects exports from the GCC, Al Zadjali added.
Saudi Arabia's finance minister Ibrahim Al Assaf and his Kuwaiti counterpart Mustafa Al Shamali Saturday also said "no" when asked about possible concerns for regional economies over the weaker greenback.
There are no any concerns over inflation in the region at present, Al Shamali said at a meeting of GCC finance and economy ministers and central bank governors in Kuwait City.
"We [Kuwait and the GCC] are not worried about the current inflation rates and they have not reached a worrying level. When it reaches that level we will, of course, react," Al Shamali said without providing further details.
The same sentiment was echoed by the group's secretary general, Abdulrahman Al Attiyah, who told reporters Sunday that he doesn't think that the current situation will reach the stage at which Gulf states will consider other solutions for their currencies, such as depegging.
The GCC comprises six regional states--Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman--which together meet about 17% of the world's daily crude oil needs.
"There is ample evidence today that the Gulf region as a whole will neither revalue or depeg from the dollar contrary to some punters and speculators who might want to reignite the debate," said John Sfakianakis, chief economist of Riyadh-based Banque Saudi Fransi.
"The economic fundamentals today are simply less convincing than before in order to reassess the currency regime in the region as regional inflationary pressures are still benign for now. However a weaker dollar will have some inflationary pass through impact," Sfakianakis added.
Saudi Arabia, the Middle East's biggest economy, saw annualized inflation decline to 5.8% in October compared with 5.9% in September, according to data from the Central Department of Statistics & Information published Saturday.
Speculation over a possible depeg or revaluation comes as the dollar's trade-weighted index fell to a new 2010 low of 75.794 Thursday, with both the euro and sterling rising to nine-month highs against the U.S. currency, after the U.S. Federal Reserve's decision to provide another $600 billion of stimulus through a policy known as quantitative easing between now and the middle of next year.
However, the greenback recovered some ground Friday after surprisingly solid nonfarm-payroll data, reversing some of the losses suffered in the wake of the Fed's latest stimulus plan. The dollar gained further ground Monday.
Paul Gamble, head of research at Jadwa Investment in Riyadh, also dismissed the notion that movements in the dollar will affect plans to develop a common currency for the region.
"GCC policy makers will make their decisions based on clear long-term trends. A fundamental weakening of the dollar over many years would cause them to reexamine the peg for the potential common currency, but we are a long way from that," Gamble said.
U.A.E. Central Bank Governor Sultan Al Suwaidi said in October that his country was happy with the currency link and has no plans to change its monetary regime.
"We have had very good experience most of the time with the dollar peg since the early '70s," Al Suwaidi said at the time. "We have no plans to break the dirham peg to the dollar despite all the pressures."
High inflation exacerbated by a weak dollar prompted calls for the Gulf to drop pegs in 2007, and Kuwait did so, while the decline in U.S. stock markets hit Gulf foreign investments. But price growth slowed sharply in the Gulf region from the mostly record, double-digit rates seen in 2008 as the global downturn dented income for oil-producing nations, tightened credit and cut food and commodity prices.
But some believe the region's U.S. allies should reconsider their commitment to fixed exchange rates and adapt to the various economic changes the global market is witnessing.
"One of those economic changes is the 'war of currencies' due to financial imbalances. Such financial imbalances and battle among top currencies might lead to the weakening of the dollar, as to what the yen is witnessing at the moment, and this might reflect on other currencies as well," said Jassim Al Mannai, director general and chairman of Arab Monetary Fund.
"This would create a new wave of inflation peak, especially among this region's economies that are pegged, to a greater extent, to the dollar. The whole situation calls for hedging in the face of any future possible scenario."
Zawya Dow Jones News
Tuesday, Nov 09, 2010
(This item was originally published Monday.)
By Summer Said
Of ZAWYA DOW JONES
KUWAIT CITY (Zawya Dow Jones)--Gulf Arab states are brushing off speculation that countries in the region may consider depegging their currencies from the sliding U.S. dollar, with officials saying Monday and over the weekend that they aren't concerned over the impact of the greenback's fall on their economies.
A steep decline in the dollar's value against major currencies has given rise to speculation that hydrocarbon-rich Gulf Cooperation Council, or GCC, states--all of which peg their currencies to the greenback except Kuwait--may be pushed to revalue their currencies as income from dollar-priced oil exports is being eroded and inflationary pressures increase on the back of higher import prices, in particular for commodities such wheat.
Hamood Sangour Al Zadjali, executive president of the Central Bank of Oman, said Monday that the central bank there "remains fully committed to the fixed peg," which "provides the country with a stable exchange rate which helps in promoting investment, growth and diversification of the economy."
A weaker dollar also helps keep oil prices high and protects exports from the GCC, Al Zadjali added.
Saudi Arabia's finance minister Ibrahim Al Assaf and his Kuwaiti counterpart Mustafa Al Shamali Saturday also said "no" when asked about possible concerns for regional economies over the weaker greenback.
There are no any concerns over inflation in the region at present, Al Shamali said at a meeting of GCC finance and economy ministers and central bank governors in Kuwait City.
"We [Kuwait and the GCC] are not worried about the current inflation rates and they have not reached a worrying level. When it reaches that level we will, of course, react," Al Shamali said without providing further details.
The same sentiment was echoed by the group's secretary general, Abdulrahman Al Attiyah, who told reporters Sunday that he doesn't think that the current situation will reach the stage at which Gulf states will consider other solutions for their currencies, such as depegging.
The GCC comprises six regional states--Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman--which together meet about 17% of the world's daily crude oil needs.
"There is ample evidence today that the Gulf region as a whole will neither revalue or depeg from the dollar contrary to some punters and speculators who might want to reignite the debate," said John Sfakianakis, chief economist of Riyadh-based Banque Saudi Fransi.
"The economic fundamentals today are simply less convincing than before in order to reassess the currency regime in the region as regional inflationary pressures are still benign for now. However a weaker dollar will have some inflationary pass through impact," Sfakianakis added.
Saudi Arabia, the Middle East's biggest economy, saw annualized inflation decline to 5.8% in October compared with 5.9% in September, according to data from the Central Department of Statistics & Information published Saturday.
Speculation over a possible depeg or revaluation comes as the dollar's trade-weighted index fell to a new 2010 low of 75.794 Thursday, with both the euro and sterling rising to nine-month highs against the U.S. currency, after the U.S. Federal Reserve's decision to provide another $600 billion of stimulus through a policy known as quantitative easing between now and the middle of next year.
However, the greenback recovered some ground Friday after surprisingly solid nonfarm-payroll data, reversing some of the losses suffered in the wake of the Fed's latest stimulus plan. The dollar gained further ground Monday.
Paul Gamble, head of research at Jadwa Investment in Riyadh, also dismissed the notion that movements in the dollar will affect plans to develop a common currency for the region.
"GCC policy makers will make their decisions based on clear long-term trends. A fundamental weakening of the dollar over many years would cause them to reexamine the peg for the potential common currency, but we are a long way from that," Gamble said.
U.A.E. Central Bank Governor Sultan Al Suwaidi said in October that his country was happy with the currency link and has no plans to change its monetary regime.
"We have had very good experience most of the time with the dollar peg since the early '70s," Al Suwaidi said at the time. "We have no plans to break the dirham peg to the dollar despite all the pressures."
High inflation exacerbated by a weak dollar prompted calls for the Gulf to drop pegs in 2007, and Kuwait did so, while the decline in U.S. stock markets hit Gulf foreign investments. But price growth slowed sharply in the Gulf region from the mostly record, double-digit rates seen in 2008 as the global downturn dented income for oil-producing nations, tightened credit and cut food and commodity prices.
But some believe the region's U.S. allies should reconsider their commitment to fixed exchange rates and adapt to the various economic changes the global market is witnessing.
"One of those economic changes is the 'war of currencies' due to financial imbalances. Such financial imbalances and battle among top currencies might lead to the weakening of the dollar, as to what the yen is witnessing at the moment, and this might reflect on other currencies as well," said Jassim Al Mannai, director general and chairman of Arab Monetary Fund.
"This would create a new wave of inflation peak, especially among this region's economies that are pegged, to a greater extent, to the dollar. The whole situation calls for hedging in the face of any future possible scenario."