JEDDAH, 28 October 2007 — The Saudi riyal’s peg to the US dollar will remain unchanged as GCC countries yesterday unanimously agreed to the continuation of the present exchange rate policy, Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency (SAMA), announced.
Speaking to reporters at the end of a joint meeting of GCC finance ministers and central bank governors, Sayari said GCC leaders would decide during their December summit whether they would be able to meet a 2010 deadline for monetary union.
“Our meeting discussed the issue of the Saudi riyal’s peg to the American dollar and all members unanimously agreed to the continuation of the present exchange rate policy without making any change at present,” the Saudi Press Agency quoted the SAMA chief as saying.
Sayari, who led the Saudi delegation at the meeting on behalf of Finance Minister Ibrahim Al-Assaf, said the GCC countries would regularly monitor the dollar’s exchange rate to take appropriate decisions. The official said this when asked about the GCC’s stance if the value of the dollar were to decline further.
Sayari’s statement ended speculation that the riyal-dollar peg would be lifted as part of efforts to contain growing inflation in the Kingdom. Kuwait’s central bank parted company with its GCC partners in May this year when it ended the dinar’s peg to the US dollar and linked it to a basket of currencies.
Investors were eagerly watching the Jeddah meeting of top financial and monetary policymakers in the six-member Gulf Cooperation Council that groups Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates.
Sayari said the ministers authorized technical committees to reassess the situation on the launch of the monetary union and submit their findings to the upcoming GCC summit in Doha.
“We have come across some difficulties in fixing the rates. The situation will be reassessed and the observations submitted to the Gulf summit,” Sayari said when asked about the timeframe for the launch of the monetary union.
GCC Secretary-General Abdul Rahman Al-Attiyah said the meeting discussed how to overcome obstacles to its planned single currency launch and alternatives should the 2010 deadline be missed.
Proposals include postponing the deadline or launching the scheme in 2010 for those states that are ready and allowing others to join later.
The single currency plan has met technical, legislative and fiscal hurdles. Homud Al-Zidjali, Oman’s central bank governor, announced in May that the sultanate would not join the scheme. “Our decision is not to participate in the Gulf monetary union... because we do not want to restrict our monetary and fiscal policies at present,” Zidjali said.
The International Monetary Fund (IMF) said Gulf monetary policy needed to be consistent with dollar pegs, after the six states broke ranks on their response to a US interest rate cut last month, raising speculation about currency revaluations.
“I think the relationship with the dollar is one alternative,” IMF Managing Director Rodrigo Rato told reporters after meeting the GCC finance ministers and central bank governors. “That alternative requires following a monetary policy that is coherent with that alternative,” he said.
Rato commended the role of Saudi Arabia and other GCC countries in stabilizing the world oil market by increasing production to meet growing demand.
