Riyal-dollar peg ‘serves interests of Kingdom’

The Saudi riyal peg to the US dollar will continue as it serves the national economic interest of the Kingdom as well as of those which have chosen to keep the peg like Qatar and others in the GCC, says a senior Riyadh-based economist.
"Those that keep the peg, like Saudi Arabia and Qatar, benefit from currency stability and predictability," John Sfakianakis, chief investment strategist at Masic in Saudi Arabia, told Arab News.
Qatar's Central Bank Gov. Abdullah Saud Al-Thani was quoted as saying earlier that his country had not changed its support for pegging the riyal to the US dollar after Reuters reported that the bank's director of research urged a more flexible exchange rate.
"He is not reflecting the central bank," the governor told Bloomberg, referring to the remarks by research director Khalid Al-Khater.
Sfakianakis also said: "Inflationary concerns will remain subdued for Qatar as the economy is slowing down and imported inflation is far less of a concern as trading partners inflation is low."
For Saudi Arabia, Sfakianakis said inflation is at a moderate level given the high level of spending and GDP growth the economy over the last few years.
"Steps are taken to keep making progress on the monetary union front. Certainly its a project that is ongoing but not to be discounted," he said.
Commenting on the currency peg, Jarmo T. Kotilaine, a regional analyst, said: "I see neither the political appetite not a truly compelling case for modifying the current exchange rate policy which is after all based in joint GCC decisions."
"The GCC monetary union is not only achievable. It is being actively worked on by the Gulf Monetary Council which is charge of the preparation," he said.
"The technical groundwork is being laid to make further steps possible when the time is deemed right for them," Kotilaine told Arab News.
Earlier, the Riyadh-based Jadwa Investment said in its May report that Saudi annual CPI inflation slightly increased to 4 percent in April compared with 3.9 percent in the previous three months. It slightly eased to 0.2 percent on a monthly basis.
The food and rent/housing components remained the main contributors to headline inflation, adding 2.2 percentage point while all other components added 1.8 percentage point.
GCC countries embraced fixed exchange rate regimes to stabilize their currencies and import low inflation from overseas.
But their economic cycles have diverged from the United States in recent years as Asia became the Gulf’s dominant trade partner.
“We in the GCC need more than an outdated four-decade old simple uni-instrument, uni-tool macroeconomic policy framework,” Al-Khater, said in a prepared speech, cited by news agencies.
“This framework was suitable for the earlier stages of development. However, the world has changed,” said Al-Khater, who has recently completed a scientific research study on the topic, adding it did not necessarily reflect the QCB’s official view.