Saudi Arabia on Wednesday ruled out revaluing its dollar-pegged riyal saying currency stability was important for investors in the world's largest oil exporter, and would be concerned if the dollar fell 'substantially.'

Asked if he was concerned about the decline in the US dollar, Saudi Central Bank Governor Hamad Saud al-Sayyari told Reuters in Riyadh: 'Yes, we are concerned if it falls substantially ... but this is the market - we have to see it and we have to accept it.' Sayyari would not be more specific.

'What's important for us is the development programme ... we think stability in the exchange rate and transparency is important for investors,' Sayyari said. 'This is one of the most important considerations.'

Sayyari also told Al Arabiya Television: 'We are willing and able to intervene ... to maintain the exchange rate,' when asked whether the kingdom was prepared to defend the riyal against currency traders. 

Despite the governor's statement, the Saudi riyal firmed very slightly to 3.7336 per dollar as markets interpreted the guarantee as less than water-tight.

The riyal had been trading at 3.7376 before the announcement, just off a 21-year high against the dollar.

Trading was choppy however and the currency was bid lower at 3.74 per dollar at 1149 GMT.

The central bank also highlighted the inflation risk and blamed rising food prices, though pegs to the weakening dollar are widely blamed for surging inflation in the Gulf.

'The market had expected them to announce much more strongly their commitment to the peg. The riyal had weakened slightly this morning as people had rallied to the idea they would make a strong statement in favour of the dollar peg and warn investors not to speculate about a revaluation,' said Dorothee Gasser, economist at ING Bank in London.   

Saudi Arabia, one of five Gulf Arab states with a dollar peg, said last week it would not cut interest rates after a 50-basis-point cut by the US Federal Reserve, fuelling speculation the oil producer would revalue its currency. - Reuters