DOHA (Reuters) – Qatar, one of five Gulf oil producers that pegs its currency to the dollar, said on Sunday it would only track future U.S. Federal Reserve interest rate moves if they suited conditions in its domestic market.
Qatar, Saudi Arabia, Bahrain and the United Arab Emirates followed a 25-basis-point Fed cut by lowering some interest rates last week along with Kuwait, which tracks the value of the dinar against a basket of currencies including the dollar.
The central bank of neighboring Oman, which also maintains a dollar peg, declined to comment on Sunday when it would follow the Fed’s latest move.
Central banks in the six oil producers are torn between tracking U.S. monetary policy to deter bets on the appreciation of their currencies and curbing inflation, which is running at decade highs across the region.
“It depends on liquidity and the situation in the market,” Qatar’s central bank Sheikh Abdullah bin Saud al-Thani told reporters when asked whether Qatar would track future Fed moves.
Inflation in Qatar was 12.8 percent at the end of June, the highest in the region, and just below a record 14.81 percent at the end of March.
“It is our expectation that there will be a decrease in inflation,” Sheikh Abdullah said. “It is clear that there has been growth in inflation and so there is lots of room for it to fall.”
Inflation would fall to 10 percent within a year, Sheikh Abdullah said in September.
Despite soaring inflation, Qatar chose last week to reduce its deposit rate by 25 basis points to 4.25 percent, to make bets on the appreciation of the riyal currency less attractive after the Fed cut.
It left the lending rate, its main policy signal, unchanged at 5.5 percent and its repurchase rate steady at 5.55 percent.
Oman, Saudi Arabia and Bahrain, held back from lowering interest rates in September after a 50-basis-point cut in the U.S. Fed funds rate, which dropped a further 25 basis points last week.
That triggered speculation of an imminent revaluation of the Saudi riyal, driving the currency to a 21-year high.
Asked whether Oman was considering cutting interest rates, Central Bank Executive President Hamood Sangour al-Zadjali said: “No comment.”
Kuwait broke ranks with its neighbors and dropped its peg to the U.S. dollar in May, saying the greenback’s decline on global markets was fuelling inflation and making some imports more expensive.
The move threw into disarray plans for monetary union with other Gulf oil producers by 2010 — a deadline Saudi Arabia’s central bank governor said in September would be “difficult” to meet.
Asked whether the Gulf Arab policy makers were considering changing currency policy together, Sheikh Abdullah said: “There is no change at all. We are now sticking to 2010.”
Gulf Arab rulers would review the timetable for monetary union at their annual summit, Saudi Central Bank Governor Hamad Saud al-Sayyari said after a meeting of regional finance ministers and central bankers on October 27.
The next Gulf Arab summit is in December.