RIYADH, (Reuters) – Saudi Arabia’s finance minister and central bank governor will appear before a council that advises the king to discuss the riyal’s peg to the U.S. dollar and a surge in inflation, a council member said on Sunday.
Inflation in the world’s biggest oil exporter, which pegs its riyal to the dollar, rose to a 16-year high of 6.5 percent in December, partly driven by a rise in global commodity prices and the declining U.S. currency.
The Shura Council, whose members are appointed by King Abdullah, will meet Finance Minister Ibrahim al-Assaf and Hamad Saud al-Sayyari — governor of the Saudi Arabian Monetary Agency — on Feb. 10, Mohammad al-Zulfa told Reuters.
“The finance minister and the central bank governor were invited to debate these issues, discuss this dollar peg debate, its repercussion and what the government plans to do about it,” Zulfa said.
Ihsan Bu-Hulaiga, head of the council’s finance committee, declined to comment. Okaz newspaper reported the planned meeting earlier on Sunday.
The 120-member Shura can review draft legislation and make recommendations, which are not binding on the government.
Saudi Arabia has been trying to offset the effect of higher prices on its 25 million people through measures such as subsidies on imported rice and baby milk, introduced last month by order of the king.
The government also plans to help pensioners by assisting them with their utility bills, and offering them food coupons and medicines for serious ailments, al-Eqtisadiah reported on Sunday.
Average inflation in the largest Arab economy may accelerate to 4.1 percent this year from 3.8 percent last year, a Reuters poll showed in December.
Debate in the Gulf about dollar pegs has intensified because they force central banks to track U.S. monetary policy at a time when the Federal Reserve is cutting interest rates in an effort to stimulate the U.S. economy.
The Fed has cut its benchmark rate 175 points since Sept. 18. Saudi Arabia has followed by cutting its key deposit rate to 3.5 percent, on a par with U.S. rates.
Inflation is now above official interest rates. The negative real interest rate environment could deepen if the Fed cuts again when it meets this week.
Still, Saudi Arabia remains committed to the peg. It would take a “precipitous” decline in the dollar for the kingdom to change the value of its riyal against the U.S. dollar, which has been fixed since 1986, deputy central bank governor Mohammed al-Jasser said in Davos last week.