DUBAI, 1 December 2007 — Bahrain accused foreign banks of unethically piling pressure on Gulf currency pegs and warned it would “take action” against anyone targeting its dollar-pegged dinar, a magazine reported, citing the central bank governor.
Bahrain cut interest rates last week to deter bets on an appreciation of the dinar, which has been largely spared the growing pressure for a revaluation.
Investors betting Gulf central banks would eventually sever the pegs to the tumbling US dollar pushed the United Arab Emirates dirham to a 17-year high, the Saudi riyal to a 21-year peak and the Qatari riyal to a five-year high this week.
“There are foreign institutions packaging investment products based on currency revaluation, while their analysts are propagating the revaluation story and spreading rumors,” Rasheed Al-Maraj told Middle East Economic Digest in an interview. “It is a clear conflict of interests and we look at this very suspiciously,” he said in the text of the story given to Reuters by the London-based weekly.
The banks were guilty of “unethical behavior” and Bahrain would “take action” against any one who targeted the dinar, Maraj said in the interview that scheduled to be published on the magazine’s website later yesterday.
He did not name any banks, the magazine said.
The report did not give details of what action the central bank could take. Bahrain is vying with Dubai for the financial services business in the world’s biggest oil-exporting region and is a centre of banking, Islamic finance and insurance.
Deutsche Bank, Standard Chartered, ING, Citigroup, Commerzbank and Merrill Lynch are among foreign banks that have said in research reports that one or more Gulf states may revalue their currencies or drop their pegs.
A Reuters poll of 24 analysts across the Gulf and Europe showed most expecting Saudi Arabia, Oman, Bahrain, Qatar and the United Arab Emirates to follow neighboring Kuwait and drop their pegs possibly as early as this year.
Pressure on the currency pegs has been building since UAE central bank Governor Sultan Nasser Al-Suweidi said this month his country was under growing social and economic pressure to drop its peg and track a currency basket.
Saudi Arabia could consider revaluing its currency for the first time in 21 years without dropping its peg, according to a source familiar with Saudi currency policy. Maraj said Bahrain would stand by its peg to the dollar.
Gulf Arab rulers meet next week in Qatar for talks that could settle the future of their exchange-rate policies.
