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Gulf rulers to decide on currency union in Dec

Riyadh, October 27, 2007

The rulers of six Gulf Arab oil producers will decide in December whether they can meet a 2010 deadline for monetary union, the Saudi central bank governor said on Saturday after meeting regional policymakers.

Investors were watching the meeting in the Saudi Red Sea port city of Jeddah for any signs of a rift on currency policy, which could renew market bets on the demise of a regional exchange-rate regime pegged to the tumbling US dollar.

'There was agreement that there is no need to change the current foreign exchange policy with consensus from all member states,' Hamad Saud Al Sayyari, governor of the Saudi Arabian Monetary Agency said after the talks.

Gulf currencies strengthened again on Friday, with the Qatari riyal gaining to its strongest since 2003, as investors bet delays to monetary union plan would prompt central banks to let exchange rates appreciate.

'We did not discuss setting a new date,' Sayyari said.

Finance ministers and central bankers would pass on their assessment of the currency union plan to Gulf Arab rulers, who would decide the issue when they meet in Qatar in December.

All six states agree the 2010 deadline will be difficult, if not impossible, to meet. United Arab Emirates Central Bank Governor Sultan Nasser al-Suweidi told a magazine this month that the timetable could slip beyond 2015.

The International Monetary Fund 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 relationship with the dollar is one alternative,' IMF Managing Director Rodrigo Rato told reporters after meeting Gulf Arab officials in Jeddah.

'That alternative requires following monetary policy that is coherent with that alternative,' he said.

When the US Federal Reserve cut rates on Sept. 18, Saudi Arabia, Oman and Bahrain declined to follow, choosing to ride out pressure on their currencies to appreciate, rather than stoke inflation at home.

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 US dollar.

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.

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. Kuwait's central bank started tracking the dinar's rate against a currency basket, saying dollar weakness was fuelling inflation by making some imports more expensive.

Kuwait's neighbours have repeatedly ruled out following suit. But with the dollar at record lows, regional inflation at decade highs and central banks facing the prospect of tracking more US interest rate cuts, Gulf states may be considering a revaluing currencies together, Standard Chartered Bank said last week. - Reuters




Tags: Gulf | GCC | currency union |

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