RIYADH: A Saudi council that advises Custodian of the Two Holy Mosques King Abdullah is likely to recommend a revaluation of the dollar-pegged riyal as a measure to fight inflation, one of the members said yesterday.

Saudi Arabia and four other Gulf oil producers peg their currencies to the dollar, which tumbled to a record low against the euro yesterday, driving up import costs and stoking inflation in the world’s biggest oil-exporting region. An internal committee of the Shoura Council wrote a report urging the world’s top oil exporter to revalue the riyal, Waleed Arab Hashem, the Shoura Council member who made the proposal, said.

“The committee that is doing the report asked me for a recommendation and I proposed a revaluation,” Hashem told Reuters.

“It’s logical to keep the peg to the dollar but the peg is not sacred, (the riyal) should be revalued.”

The report included other recommendations to tackle inflation near a more than 30-year peak above 10 percent, he said. The Saudi economy is surging on a sevenfold rise in oil prices since 2002.

“The discussion of the report started yesterday and we are also discussing it today. A vote will be held very soon, it will need approval by two-thirds of the members and I think it will move through easily,” Hashem said.

Hashem said he would propose to the council “a 20 percent revaluation because the riyal has lost 30 percent of its value.”

Decisions of the Shoura Council are not binding. Once approved by the council, the report would go to the government for “examination,” Hashem said.

“I don’t know if the government will approve its recommendations, including the revaluation, but what we see now is that inflation has not stopped and the riyal keeps declining without justification,” he said.

Inflation spiral

Saudi Arabian policymakers have repeatedly said they have no plans to change currency policy. Saudi Arabian Monetary Agency Gov. Hamad Al-Sayari said this month that adjusting exchange rates would not solve the issue of high inflation.

The Kingdom has been the region’s staunchest supporter of the peg, keeping its riyal linked to the dollar at 3.75 since 1986.

But since Kuwait severed its link to the dollar in May 2007 in favor of a currency basket, markets have speculated whether other Gulf states could follow suit.

In addition to stoking imported inflation, dollar pegs have forced booming Gulf states to slash interest rates in line with the US Federal Reserve.

Abu Dhabi’s Department of Planning and Economy said in a report this month that Gulf states should consider pegging their currencies to a basket. “This is an issue that will keep on surfacing as long as inflationary pressures persist while the dollar weakens,” said John Sfakianakis, chief economist at SABB bank, HSBC’s Saudi affiliate.

“But whether this will impact the government position, I highly doubt it,” he said.

The last time the Shoura Council debated revaluation as a means of tackling inflation was at a February meeting to discuss how to combat rising prices.

Saudi Arabia’s finance minister and Central Bank governor said at the time they would not change foreign exchange policy for now. A source familiar with Saudi currency policy said in November that the Kingdom could consider revaluing the riyal with other Gulf oil producers while retaining its dollar peg. The comments drove the Saudi riyal to a 21-year high.