DUBAI, (Reuters) – The International Monetary Fund urged Kuwait to resist market pressure to revalue the dinar currency on Sunday, saying any change to its dollar-peg risked undermining confidence in a stable exchange rate.
Speculators betting on a dinar appreciation piled pressure on the exchange rate earlier this year, forcing the oil exporter’s central bank to cut several interest rates in April.
Although the pressure has eased, the bank cut its repurchase rate for the second time in six weeks on Sunday.
“The gains from revaluation will be very small. The cost you incur is that you lose the perception of currency stability,” Mohsin Khan, director of the IMF’s Middle East and Central Asia department, said.
“At this point we say ‘remain with the peg’. Inflation is not coming from the depreciation of the dollar. What’s driving inflation in all the Gulf countries is large amounts of liquidity in the system, government spending and capacity constraints,” he told Reuters in an interview.