Gulf States May Revalue Currencies

Gulf states, including Saudi Arabia and the United Arab Emirates, may revalue their currencies while maintaining their pegs to the U.S. dollar, a person familiar with Saudi monetary policy said.

The states may revalue by an unspecified amount in as soon as a month's time, said the person, who declined to be identified because the matter is confidential. No decision has been made on whether to revalue, he said. Evidence has been gathered and will be presented to policy makers, he said, without giving details.

Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they have no plans to change exchange rate policies. U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the U.A.E. may drop the dirham's peg in favour of a basket of currencies. Gulf currencies are under pressure as investors bet governments cannot manage inflation and keep their pegs.

Heads of state from the six Gulf Cooperation Council states will hold their annual meeting in Qatar on Dec. 3-4 where they will discuss monetary policy and security. The person did not specify if a decision would be made at the meeting.

The leaders will, though, take a decision on whether to abandon a proposed Gulf single currency at the meeting, Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said after a meeting of finance ministers and central bank governors in Riyadh on Oct. 27.

Currency Moves

The dollar slid to a record low of $1.4752 against the euro on Nov. 9 and has fallen versus 15 of the 16 most actively traded currencies tracked by Bloomberg in the past 10 1/2 months.

The Saudi riyal rose to a 20-year high after the Fed cut rates on Sept. 18 and the Saudi Arabian Monetary Authority chose not to follow. The riyal and the dirham rose this week after al-Suwaidi questioned the U.A.E.'s currency peg.

The riyal was trading at 3.725 to the dollar at 10.09 p.m. in Riyadh, 0.7 percent higher than the peg price of 3.75. Contracts to buy U.A.E. dirhams in 12 months time rose the most in at least 10 years on Nov. 15 after al-Suwaidi's comments, and were trading at a 2.5 percent premium to the spot price today.

Source - Bloomberg