BASEL, Switzerland (Reuters) – Six Gulf countries aiming for monetary union by 2010 are committed to their dollar pegs, and speculators betting on rising Gulf currencies could get their fingers burnt, Saudi Arabia’s central bank vice governor Muhammad Al-Jasser said.
In an interview with Reuters on Sunday, Al-Jasser also said he saw no need to tighten Saudi monetary policy now and added that the country’s dollar peg served the Gulf’s largest economy well.
Saudi Arabia is one of the six countries in the Gulf Cooperation Council (GCC) which plans a single currency by 2010.
However, this deadline is in doubt. Markets have been piling pressure on Gulf currencies, betting that some central banks will allow their currencies to appreciate against the falling dollar.
Asked what he would say to those speculators betting on higher Gulf currencies, Al-Jasser said: “Try to find other currencies. GCC currencies are solid, well managed and (it) would be dangerous for speculators to try to play them.”
Al-Jasser, who is vice governor of the Saudi Arabian Monetary Agency, added that the six Gulf countries had not discussed the dollar peg at a meeting they held in April.
“The course was stayed because it wasn’t raised as an issue.
The course is to peg the currencies to the dollar until the launch of monetary union and the creation of the monetary institution,” he said.
“Everybody is still committed to that agreement,” said Al-Jasser, who was in Basel for a bi-monthly meeting of central bank officials at the Bank for International Settlements.
Speculation of a delay to monetary union gathered momentum after Oman said last year it had decided not to meet the target.
Al-Jasser said: “2010 is getting closer and closer which makes it much more demanding to complete all the technical work, but the committees are working hard and we see what we can achieve before the deadline.”
Asked if the countries were committed to the deadline, he said: “Yes.”
The dollar’s recent slide to a record low against the euro has made some Gulf Arab imports more expensive, driving up inflation.
But Al-Jasser said: “No, we will not (change the peg) because it continues to serve us well. As long as the present circumstances prevail, we have no reason or interest in changing it,” he said.
“Of course whenever you are pegged to a currency and it depreciates or appreciates, it raises concerns,” he said.
“However, in the case of Saudi Arabia, the dollar happens to be a natural hedge, meaning all of our exports are denominated in dollars, and more than 70 percent of imports are denominated in dollars … Therefore, the impact is not as significant as one would gather from reading newspapers.”
Saudi Arabia raised benchmark repo interest rates by 30 basis points in February to 5.5 percent.
“If there is a need for action it will be taken and reported but it’s not something to be discussed a priori. I don’t think there is a need now (to tighten policy),” he said.