London- Foreign investors are testing Qatar’s currency peg, revealed Bloomberg, adding that cutting ties led to a temporary shortage in the American dollar.
The Qatar Central Bank provides dollars to domestic banks at the pegged rate, satisfying onshore dollar demand and supporting the credibility of the peg.
The currency slumped to as low as 3.7794 per dollar, the weakest level in three decades. The central bank typically buys and sells dollars to keep the exchange rate within a range of 3.6385 to 3.6415 riyal.
Qatari banks rely on non-residents for almost a quarter of their deposits and the June 5 decision by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to cut ties with the country prompted some Gulf banks to withdraw funds, sparking a market selloff.
S&P Global Ratings lowered Qatar’s long-term credit rating and put it on negative watch, knowing that the Qatari riyal has been pegged to the dollar since July 2001.
But bankers see that the central bank’s absence in the offshore market would mean that the rate could continue to rise. Eventually, and to close the gap between the onshore and offshore rates, we expect a direct or indirect intervention that would flood the offshore market with dollars, bringing down the rate fairly quickly.
In the matter related to the offer presented by Qatar Airways to buy a stake from American Airlines Group, American CEO Doug Parker said that he’s not wild about the prospect of a potential investment from Qatar Airways and finds the approach “puzzling and strange.”
Parker noted that American Airlines Group is not excited about Qatar’s intention to purchase 10% of the company’s shares.