DUBAI,(Reuters) – Annual inflation in Saudi Arabia accelerated to 8.67 percent in February, the highest in at least 27 years, as rents and food costs surged in the world’s largest oil exporter.

The Saudi central bank is constrained in the fight against inflation by the riyal’s peg to the dollar. Saudi Arabia cut interest rates by three-quarters of a percentage point last week in tandem with the U.S. Federal Reserve.

Inflation in February was driven by rents, which surged 18 percent and food costs, which jumped 13 percent, according to data from the central department of statistics.

The cost of living index rose 6.99 percent in the 12 months to Jan. 31, the fastest pace since 1981, according to SABB bank, HSBC’s Saudi affiliate.

Unable to use montary policy, the government is resorting to subsidies and wage hikes to cushion the impact of surging inflation, leading markets to bet that it will eventually allow the riyal to appreciate against the dollar.

“If you have global price rises and the currency is weaker by the day then there is a strong case for currency reform,” said Marios Maratheftis, regional head of research at Standard Chartered Bank in Dubai.

Investors in forward contracts were expecting the riyal to gain 2.08 percent in a year to 3.672 per dollar.