JEDDAH (Reuters) – Gulf Arab states are likely to agree to delay a 2010 deadline for monetary union at a meeting of central bankers and finance ministers on Saturday, an official of the region’s economic bloc said.
Investors are 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 U.S. dollar.
Gulf currencies strengthened 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 their exchange rates appreciate.
The official purpose of the meeting is to review the timetable for a single currency in the world’s biggest oil-exporting region. Saudi Arabia and its five neighbours agree the 2010 deadline will be difficult, if not impossible, to meet.
The six oil producers, who had agreed to keep currencies pegged to the dollar until 2010, could set a new deadline, an official of the Gulf Cooperation Council told Reuters before the talks began.
“They will discuss measures that need to be taken in the event of a delay,” the official said, asking not to be identified.
The policymakers could announce a new timetable at the end of the meeting or leave that to Gulf Arab heads of state who meet later in the year, he said.
The Gulf officials are meeting a delegation from the International Monetary Fund, including Managing Director Rodrigo Rato.
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 basket of currencies, saying dollar weakness was fuelling inflation by making imports more expensive.
Saudi Arabia, Oman, Qatar, Bahrain and the United Arab Emirates have repeatedly ruled out following Kuwait’s lead.
But with the dollar at record lows, regional inflation at decade highs and central banks facing the prospect of tracking more U.S. interest rate cuts, Gulf states may be considering a revaluing their currencies together, Standard Chartered Bank said last week.
When the Federal Reserve cut rates on Sept. 18, Saudi Arabia, Oman and Bahrain declined to follow, choosing to ride out pressure on their currencies rather than stoke inflation at home. The Saudi riyal hit a 21-year high on the news.
Qatar and UAE, the two countries with the region’s highest inflation rates, cut some key rates along with Kuwait, to help deter bets on currency appreciation.
Bids on the Saudi riyal hit a high of 3.7350 per dollar on Friday, compared with 3.7400 on Thursday. The latest 21-year peak, hit on Oct. 10, was 3.7290.
Bids on the Qatari riyal touched 3.6335 per dollar on Friday, the strongest since March 12, 2003.