JEDDAH, 29 September 2007 — Sultan Al-Suwaidi, governor of the UAE Central Bank, has said that all GCC countries including Saudi Arabia would be forced to cut interest rates shortly. “All GCC central banks will be forced to cut interest rates like the decision taken by our bank,” Suwaidi told Al-Eqtisadiah daily, a sister publication of Arab News.

He described cutting interest rates or revaluing currency as “a sour medicine.” However, he said that cutting interest rates to cope with US dollar was essential to maintain economic balance.

Hamad Al-Sayari, governor of Saudi Arabian Monetary Agency (SAMA), said recently the Kingdom has no plan to revaluate the dollar-pegged riyal and cut interest rates. “It is not necessary for us to follow a cut in interest rate, especially when there is high liquidity...We think exchange rate stability and transparency are important for investors,” he added.

But the UAE Central Bank changed interest rates twice during the past week as the rate of reduction reached 0.25 percent and the value of UAE dirham reached 3.6682 against the dollar, the highest in five years.

Qatar, another GCC member, has also cut interest rates on the riyal. “As long as the currencies of GCC countries are pegged to the US dollar, they have to follow the American monetary policy. GCC monetary authorities have to be ready to face certain challenges,” the UAE official said.

Suwaidi did not rule out the UAE Central Bank cutting interest rates for the third time if the US Federal Bank does it again. He said the GCC leaders decided to link their currencies with the dollar in order to reduce their exchange rate differences.

“Pegging to the dollar is a combined GCC decision,” the UAE official said. However, he pointed out that GCC leaders might one day decide to de-peg their currencies as a result of heavy financial losses they suffer.

He denied suggestions that the GCC central bank governors were planning to present a proposal on de-pegging of their currencies to the dollar at the upcoming GCC summit scheduled for December.