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JEDDAH, 8 March 2005 — Top central bankers meeting in Basel, Switzerland, were generally optimistic about the world economy recording robust growth this year, Saudi Arabian Monetary Agency (SAMA) Governor Hamad Al-Sayari said yesterday. Al-Sayari said that rising oil prices had so far not impacted growth. He also said that faster US growth compared with other developed economies is positive for the dollar and further efforts to cut the US twin deficits would benefit the currency. After hitting a record low against the euro in December, the dollar has been stuck in a tight range of $1.27-$1.33 per euro, as expectations of US interest rate rises offset concerns about the US current account deficit — a major driver of the dollar’s three-year decline. “The general environment is reflected in where the market is. It is just trading in a narrow band. I do not expect people to talk about substantial changes in exchange rates,” Reuters quoted Al-Sayari as saying. “The US is the engine of growth in the industrialized world and it is way ahead of other countries in terms of economic and productivity growth. This is positive for the dollar. If there is any policy change in (reducing) the current account and budget deficits it would be positive for the dollar,” he added. The US administration has pledged to halve the US budget deficit in five years. The world’s biggest economy grew at an annual rate of 3.8 percent in the fourth quarter, outpacing the euro zone and Japan. Al-Sayari said central bank governors meeting at the Bank for International Settlements would discuss the world economy, with an eye on inflation risks from high oil prices. “The agenda is about the development of the world economy. Now there are statistics pointing to sustainable growth after weaker fourth-quarter growth in Japan and Europe. Generally, the view is more optimistic for the world economy,” he said. “The question is what the risks are. The imbalances on the US current (account) deficit and budget deficits in the US and Europe are still there, inflation risks are there, especially oil prices, and commodity prices are high at the moment, even though inflation is still contained. “Central banks are concerned about inflation but all the studies indicate that so far high oil prices are not impacting economic growth,” Al-Sayari said. Central bankers are also expected to discuss the problem of global structural imbalances. The US current account deficit, currently around 5 percent of gross domestic product, has created imbalances whereby the United States sucks in imports from major economies with stagnant growth. China has come under international pressure to revalue the yuan, pegged to the dollar since the Asian crisis in the late 1990s, to help correct the imbalances. US pressure on China to scrap its fixed currency regime reflects complaints by US exporters that it makes Chinese goods artificially cheap, swelling the US trade deficit. But asked if a yuan revaluation could solve the imbalances problem, Al-Sayari said: “No. I think China is an important region for world economic growth and it should not take hasty measures which would disrupt world growth.” China has repeatedly said it will keep the yuan stable but has pledged to promote financial sector reforms. Al-Sayari reiterated that the dollar still had an edge over its peers as a reserve currency. Concerns that the world’s central banks, especially in Asia and the Middle East, might diversify their foreign exchange reserves have weighed on the dollar in the past few years. “In reserve management, central banks pursue objectives such as preservation of value, liquidity and good return. The dollar still is a dominant reserve currency,” he said. Saudi Arabia’s foreign assets rose 46 percent to $87.6 billion last year as record oil revenues pumped money into state coffers. A balance sheet of SAMA assets showed investment in foreign securities doubled to SR197.34 billion in December 2004, from SR97.04 billion a year earlier. |
