MANAMA, (Reuters) – Gulf Arab oil producers are considering revaluing their dollar-pegged currencies together and will hold talks on a change in the exchange rates “in the next few days”, Bahrain’s foreign minister said on Saturday.
Saudi Arabia and five neighbours preparing for monetary union as early as 2010 ruled out dropping pegs to the tumbling dollar after a summit last week and said any talks on revaluation would be kept secret.
Since the summit the United Arab Emirates, which has been pushing for currency reform, said it would not change exchange rate policy for “the foreseeable future.”
Bahraini Foreign Minister Sheikh Khaled bin Ahmed al-Khalifa said the six states were working together to shift exchange rates, although they would keep their dollar pegs. “That’s being discussed between the central banks and there will be a meeting between the ministers of finance and the central bank governors in the next few days,” he told Reuters, when asked about revaluations.
Sheikh Khaled declined to say where the meeting would take place. “That will not really change a lot. It will not mean a big change.” he said on the sidelines of a conference in Bahrain.
All countries with dollar pegs have no plans to drop them, Sheikh Khaled said. Kuwait broke ranks with its neighbours in May and started tracking a currency basket, saying the dollar’s slide was fuelling inflation by making imports more expensive.
At the Gulf summit Qatar said currency reform was a “sovereign decision” and that any country had the right to follow Kuwait’s example.
The Gulf states still planned to work together, Sheikh Khaled said. “The right is there. Yes, each country has the right, but we do have a common policy,” he said.
The dollar pegs force the region to shadow U.S. interest rates. Gulf central banks are cutting rates in tandem with the U.S. Federal Reserve to prevent currency appreciation, ignoring inflation at home which is running at its highest this decade.
With more Fed cuts expected and the dollar hitting record lows on global markets, investors expect the Gulf states to eventually give up on their pegs and allow their currencies to appreciate.
Gulf central banks are trying to quash those expectations.
UAE Central Bank governor Sultan Nasser al-Suweidi backtracked on his call for regional currency reform last week, saying his country had no plans to change exchange-rate policy.
Suweidi nourished market expectations of an imminent change in policy when he said last month that he was under growing social and economic pressure to drop the peg and track a currency basket.
Unlike Kuwait, the UAE would only act in concert with its neighbours, Suweidi said in a series of interviews that led investors to push the UAE dirham to 17-year high and the Saudi riyal to 21-year peak.
The Gulf states also agreed at their summit to stick to a 2010 deadline for monetary union. Oman, one of six states that had agreed to the target date, said last year it had decided not to join by 2010.
The other states were also unlikely to meet the deadline, Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani told the conference in Bahrain.