Qatar may revalue riyal next month

: Wednesday, 12 March, 2008, 02:18 AM Doha Time

QATAR may revalue its currency or end the peg to the US dollar next month, Qatari Central Bank officials were quoted as saying by a Dubai-based news agency yesterday.
“Everything will be clear by the end of this month because our fiscal year ends on March 31, so by April the central bank will make an announcement,” a Qatari central bank official who declined to be identified told Zawya Dow Jones.
Prime Minister HE Sheikh Hamad bin Jassim bin Jabor al-Thani last month urged Gulf Arab oil producers to bridge differences over a single currency, saying monetary union could avert possible unilateral revaluations designed to check soaring inflation.

Qatar’s riyal is undervalued by as much as 30% and currency revaluation is being studied, among several options, to check inflation, Sheikh Hamad bin Jassim said in an interview with Reuters.

Zawya Dow Jones quoted Qatari sources as saying that a revaluation or de-peg by March 31 remain open questions. But any decision to ditch the dollar will be made by the prime minister with the approval of other Gulf Co-operation Council (GCC) countries, including the United Arab Emirates, Saudi Arabia and Kuwait.
Saudi Arabia, the UAE, Qatar, Bahrain and Oman retain their currency pegs to the US dollar regardless of growing pressure to change policy in response to the greenback’s continued slide.

The UAE, the second-largest Middle East Arab economy, has set up a task force to assess the implications of de-pegging, officials at the emirates’ central bank told Zawya Dow Jones.

US Federal Reserve interest cuts expected on March 18 will add further pressure to Gulf currencies, which are straining to maintain their existing pegs to the US dollar.

“If the Fed cuts rates this month we will also have to cut rates,” the Qatari central bank official said.
Another official at the bank said Gulf central banks were organising meetings on March 19 and April 14 to discuss the issue of de-linking their currencies from the dollar.

Analysts said a revaluation, or move to a currency basket, could be announced in the first half.

“Gulf economies reached a crucial point at the beginning of this year given the dollar weakness and expectations of more aggressive interest rates cuts in the US,” said Monica Malik, director of economics at EFG-Hermes.
EFG-Hermes estimates a 60% chance of GCC currency reform, at an initial appreciation of 5-10%.

Speculation of an imminent de-peg by Qatar continues to influence the market. One-year Qatari riyal forwards traded on Monday at just under -1800 versus last year’s low of -2000.

“The substantial discount in the one-year QR forward proves the market clearly expects revaluation,” said Jason Goff, head of treasury and market sales at Emirates Bank. “The story has not gone away.”
The Qatar riyal strengthened to a seven-day high of 3.63 to the dollar after yesterday’s report.

“Combined with other recent comments that the Qatari riyal could be undervalued by around 30% this will likely to see appreciation pressure mount,” said Deutsche Bank Middle East economist Caroline Grady.
A Qatar central bank official declined to comment when Reuters called. – Reuters/ Zawya Dow Jones