KUWAIT/DUBAI, 26 July 2007 — Kuwait allowed the dinar to appreciate around 1.7 percent against the tumbling dollar yesterday, encouraging investors to bet that other Gulf Arab oil producers would review their pegged exchange rates.
The dinar surged to an 18-year high while the Saudi Arabian riyal and the United Arab Emirates dirham strengthened as the magnitude of the Kuwait’s third revaluation in just over two months took markets by surprise. “The markets are looking at which country would likely be next,” said Koceilas Maames, Africa and Middle East Economist at Calyon Credit Agricole in Paris.
The dinar will trade at 0.28200 per dollar with the central bank buying dollars at 0.28195 and selling them at 0.28205, the central bank said. The previous rate was 0.28690 per dollar. “The Kuwait dinar is no longer a discount currency. Kuwait is dead now, the focus is shifting to the dirham,” said Rohit Kedia, a treasury manager at Emirates Bank International in Dubai.
The dirham was at 3.6716 to the dollar by 0930 GMT, strengthening more than 15 ticks from its level before the announcement. The Saudi riyal appreciated to 3.7495 from 3.7505/6. The Saudi and UAE central banks could not be reached for comment yesterday.
Both countries, and their neighbors Bahrain, Qatar and Oman, have repeatedly ruled out any change in exchange rate policy. The five states and Kuwait agreed in 2003 to maintain pegs to the dollar to prepare for monetary union in 2010.
Oman views the dollar’s decline as “a passing phase”, Mohammed Nasser Al-Jahadhmy, executive vice president at the Central Bank of Oman, told Reuters yesterday, ruling out a revaluation of the rial.
Oman raised the first questions about the timetable for monetary union last year when it opted not to join by 2010. Kuwait then plunged the project into crisis on May 20 when it dropped its dollar peg and adopted a basket of currencies, saying a weaker dollar was driving up inflation by making imports more expensive. The currency of Kuwait, the Middle East’s fourth-largest oil exporter, has now appreciated around 2.5 percent since May 19.
