JEDDAH, 12 May 2006 — The Saudi Arabian Monetary Agency (SAMA) yesterday denied speculation that Saudi riyal would be revalued.
“The exchange rate of riyal is stable and remains as it was. There is no truth in these speculations,” SAMA Governor Hamad Al-Sayari told the Saudi Press Agency.
The SAMA chief was reacting to foreign news agency reports that said the Saudi riyal would be revalued following the example of the Kuwaiti dinar. In Kuwait, a central bank spokesman said yesterday that the country’s currency had been revalued for the first time since January 2005 to allow a 1-percent appreciation against the dollar.
“There is no truth in the reports about raising the value of Saudi riyal (against US dollar),” Al-Sayari told the official Saudi Press Agency.
According to a Reuters report, the Saudi riyal surged 100 ticks against the US dollar yesterday, hitting the day’s high of 3.7414, up around a quarter percent, after closing at 3.7503 on Wednesday.
The riyal and dinar are pegged to the dollar like other currencies of the six-member Gulf Cooperation Council (GCC), which includes Bahrain, Oman, Qatar and the United Arab Emirates. The GCC countries, which supply a fifth of the world’s oil needs, are working toward a currency union by 2010.
The Kuwaiti dinar strengthened to 0.2891 to the dollar yesterday from 0.2920 a day earlier. After dinar’s revaluation reports speculation swept regional markets that other GCC countries may follow suit.
“It makes sense as all of them are facing substantial inflows which they are having to sterilize to dampen inflation,” said Richard Fox, credit analyst at Fitch Ratings. “The issue now is what the other GCC countries may do and if this is a precursor to a more flexible GCC currency.”
A Qatari central banker, however, said the country had no plan yet for a revaluation. Officials in the United Arab Emirates and Oman declined to comment.
The Gulf States have been under rare public pressure from the United States this year to address their mounting current account balance of payments surpluses.
A US Treasury paper in March highlighted the scale to which soaring oil prices have boosted the current account surpluses of the big crude-exporting nations and exaggerated US deficits. It said oil exporters now needed to play a role in unwinding those gaps.
At their April meeting in Washington, finance chiefs from the Group of Seven industrial powers also called for shared responsibility for redressing global imbalances and said it was up to the market to do so.
“This is consistent with the G7 communiqué,” said Dwyfor Evans at Bank of America. “If you’re going to revalue, it makes sense to do it when oil is above $70 a barrel.”
Kuwait usually matches US Federal Reserve rate changes within days but has not followed the last few moves.
It has so far left the benchmark dinar discount rate unchanged at 6 percent after Wednesday’s 25 basis points Fed hike, but it raised its repo rate to 5.625 percent, an increase of 0.25 percent.
“The Saudi economy has already adjusted at the existing exchange rate of SR3.75 per dollar and the Kingdom’s non-oil exports are competitive in the international market. Any revaluation will disturb the existing cost structure,” Muhammad Younas Malick, senior economist at the National Commercial Bank told Arab News.
