February 29th 2008
GCC Ponders Revaluation
The three rules of monetary policy- goes the old adage- are inflation, inflation, inflation. Well, maybe not. But that is certainly the story in the Middle East; Saudi Arabia’s official inflation rate is the highest in 12 years, and Qatar and the UAE have witnessed double-digit percentage increases, in annualized terms. Since their currencies are pegged to the USD, however, their Central Banks are unable to raise rates accordingly, leaving them with a tough decision: allow the currency to appreciate or watch prices spiral out of control. It is the same story being told in every developing country that pegs their currency to the Dollar, and the members of the Gulf Cooperation Council (GCC) are certainly not exempt. As the ranking member, Saudi Arabia will all but determine if and how the official forex policy changes. An announcement could come any day. The Gulf Times reports:
Mohammed al-Jasser, Saudi Arabia’s deputy central bank governor, had said last month that the Gulf Arab states should maintain their currency pegs to the US dollar regardless of rampant inflation in the region or the impact of US rate cuts.