By Safura Rahimi on Wednesday, February 6 , 2008
Oman’s decision to withdraw from the Gulf monetary union will not disrupt the proposed currency plan, said Chief Economist at the DIFC on Tuesday.
“I don’t think [Oman pulling out from the proposed union] will derail the process – Oman has already indicated previously that it wasn’t considering the move,” Dr Nasser Saidi told Emirates Business.
The GCC plan for a common currency faced a setback on Sunday when Oman’s Central Bank governor finally announced its decision to pull out altogether from the proposed common currency after experiencing the highest inflation rate in the GCC since 1991.
However, even without Oman, Saudi Arabia, the UAE, Bahrain, Qatar, and Kuwait could still form the union, just as the EU was established without the United Kingdom. “What I think is important in the case of monetary union for GCC countries is the decisions to be taken by Saudi Arabia and the UAE, given the size of their economies,” Dr Saidi said.
“They have to be the core drivers, with maybe other countries coming in at different times.”
With them both pushing for a union – similar to France and Germany paving the road towards the euro – they could create enough momentum to move towards a common currency, he said.
Kuwait’s US dollar de-peg in 2007 and Oman’s opt out of joining the monetary union in 2010 have led to mounting pressure on monetary authorities to change their currency policy after the US dollar’s depreciation. Dr Saidi said the best solution for GCC countries is a basket of currencies consisting of the euro, US dollar and Japanese yen.
“If you look at the volatility and the relationships [of the GCC], and which countries they should link to, it turns out the best answer is to have a basket,” he said.
A report from the Dubai Chamber of Commerce and Industry on Monday said it is most likely that the UAE Central Bank will revalue the dirham against the US dollar in line with other GCC currencies. Inflation rates are not to exceed two per cent of the lowest three’s average but so far this has not been achieved.
“The disparities in inflation rates undermine the convergence of economies in real terms,” it said.
Wednesday, February 6, 2008
Tuesday, February 5, 2008
Oman opts out of GCC single currency
Oman's central bank governor has says the country has no plans to join the proposed GCC single currency and will not revalue its currency.
Oman's decision to opt out of monetary union is significant, not so much in the act itself, but in the comments it drew from GCC finance ministers, particularly the Saudi minister, Ibrahim al-Assaf. Monetary union can still theoretically proceed without Oman, and the other five states have restated their commitment to meeting the timetable. However, Saudi Arabia, the single most important actor, in economic terms at least, has voiced concerns about the likelihood of the 2010 deadline being met, saying that the project 'is very ambitious'. This suggests to us that the timetable is probably going to be extended, as
Oman's decision to opt out of monetary union is significant, not so much in the act itself, but in the comments it drew from GCC finance ministers, particularly the Saudi minister, Ibrahim al-Assaf. Monetary union can still theoretically proceed without Oman, and the other five states have restated their commitment to meeting the timetable. However, Saudi Arabia, the single most important actor, in economic terms at least, has voiced concerns about the likelihood of the 2010 deadline being met, saying that the project 'is very ambitious'. This suggests to us that the timetable is probably going to be extended, as
Inflation threatens to derail monetary union
by Amy Glass on Monday, 04 February 2008
INFLATION THREAT: GCC states will have to revalue to meet monetary union criteria on inflation, DCCI warmed. (Getty Images)Soaring inflation across the GCC is threatening to derail the block's plans to establish a monetary union and single currency by 2010, Dubai Chamber of Commerce and Industry (DCCI) warned on Monday.
The DCCI said GCC member states have so far been unable to meet inflation criteria required for the monetary union, and the situation is becoming more difficult as housing supply shortages and the rising cost of imports linked to their currencies' peg to the tumbling US dollar fuels inflationary pressure.
The criteria states that inflation rates are not allowed to exceed 2% of the lowest three's average.
Of the six member states, Bahrain has the lowest inflation rate, at around 3% last year, while Qatar has the highest level of inflation at an average of 14% last year.
However, all six are struggling to rein in inflation, with investment back Merrill Lynch predicting last week inflation will continue to rise across the Gulf this year, hitting a 20-year high of 12% in the UAE.
RELATED: UAE inflation in danger of hitting 12% this year
The DCCI said that given Gulf leaders' determination to establish a monetary union by 2010, something most analysts now think is impossible, central banks will be forced to revalue their dollar-pegged currencies in order to harmonise inflation rates.
"It is therefore most likely that the UAE Central Bank will revalue the dirham against the US dollar inline with other GCC currencies," the DCCI said an economic bulletin.
"This will help to some extent in alleviating inflationary pressure whilst retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for a MU (monetary union) in 2010."
Record inflation has seen increasing pressure heaped on central banks to revalue their currencies or follow Kuwait's lead and ditch the dollar peg altogether.
Kuwait broke ranks with its neighbours in May last year and dropped the dinar's peg to the dollar in favour of a basket of currencies, citing the US currencies' falling value as driving up inflation.
Egyptian investment bank EFG-Hermes has forecast a 60% likelihood that central banks will introduce currency reform this year.
However, central banks have repeatedly ruled out any monetary policy shift.
In the latest defence of monetary policy, Oman Central Bank Governor Hamood Sangour Al-Zadjali on Saturday ruled out revaluing its currency or dropping its peg to the dollar, saying a weaker rial helps attract foreign investment and make exports more competitive, offsetting inflation.
RELATED: Oman rules out depegging, single currency
Al-Zadjali also ruled out altogether joining the monetary union by 2010, reiterating a decision Oman took in 2006 over concerns that spending targets could constrain economic growth.
INFLATION THREAT: GCC states will have to revalue to meet monetary union criteria on inflation, DCCI warmed. (Getty Images)Soaring inflation across the GCC is threatening to derail the block's plans to establish a monetary union and single currency by 2010, Dubai Chamber of Commerce and Industry (DCCI) warned on Monday.
The DCCI said GCC member states have so far been unable to meet inflation criteria required for the monetary union, and the situation is becoming more difficult as housing supply shortages and the rising cost of imports linked to their currencies' peg to the tumbling US dollar fuels inflationary pressure.
The criteria states that inflation rates are not allowed to exceed 2% of the lowest three's average.
Of the six member states, Bahrain has the lowest inflation rate, at around 3% last year, while Qatar has the highest level of inflation at an average of 14% last year.
However, all six are struggling to rein in inflation, with investment back Merrill Lynch predicting last week inflation will continue to rise across the Gulf this year, hitting a 20-year high of 12% in the UAE.
RELATED: UAE inflation in danger of hitting 12% this year
The DCCI said that given Gulf leaders' determination to establish a monetary union by 2010, something most analysts now think is impossible, central banks will be forced to revalue their dollar-pegged currencies in order to harmonise inflation rates.
"It is therefore most likely that the UAE Central Bank will revalue the dirham against the US dollar inline with other GCC currencies," the DCCI said an economic bulletin.
"This will help to some extent in alleviating inflationary pressure whilst retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for a MU (monetary union) in 2010."
Record inflation has seen increasing pressure heaped on central banks to revalue their currencies or follow Kuwait's lead and ditch the dollar peg altogether.
Kuwait broke ranks with its neighbours in May last year and dropped the dinar's peg to the dollar in favour of a basket of currencies, citing the US currencies' falling value as driving up inflation.
Egyptian investment bank EFG-Hermes has forecast a 60% likelihood that central banks will introduce currency reform this year.
However, central banks have repeatedly ruled out any monetary policy shift.
In the latest defence of monetary policy, Oman Central Bank Governor Hamood Sangour Al-Zadjali on Saturday ruled out revaluing its currency or dropping its peg to the dollar, saying a weaker rial helps attract foreign investment and make exports more competitive, offsetting inflation.
RELATED: Oman rules out depegging, single currency
Al-Zadjali also ruled out altogether joining the monetary union by 2010, reiterating a decision Oman took in 2006 over concerns that spending targets could constrain economic growth.
Monday, February 4, 2008
Kuwait opposed to GCC expansion
Kuwait opposed to GCC expansion
by Lynne Roberts on Monday, 04 February 2008
The GCC should not expand membership beyond its current six states, a Kuwaiti official said on Sunday.
Sheikh Mohammad Sabah Al Salem Al Sabah, deputy prime minister and foreign minister of Kuwait, said the alliance should not replace the Arab League, following a Bahrain-Kuwait higher committee meeting in Manama.
“In Kuwait, we believe that if we open the GCC to other countries, we will end up with 22 members joining,” UAE daily Gulf News quoted the minister as saying.
“The GCC is not an exclusive club, but the six countries share an identity and can work together to support the Arab League."
Established in 1981, the GCC groups Saudi Arabia, Qatar, the UAE, Kuwait, Bahrain and Oman.
The council is considering efforts by Yemen to join the alliance. The country was admitted to the GCC ministerial councils of education, health and social affairs and to the Gulf Football Cup in 2001, however its weaker economy and its status as a republic mark it out from its neighbours.
by Lynne Roberts on Monday, 04 February 2008
The GCC should not expand membership beyond its current six states, a Kuwaiti official said on Sunday.
Sheikh Mohammad Sabah Al Salem Al Sabah, deputy prime minister and foreign minister of Kuwait, said the alliance should not replace the Arab League, following a Bahrain-Kuwait higher committee meeting in Manama.
“In Kuwait, we believe that if we open the GCC to other countries, we will end up with 22 members joining,” UAE daily Gulf News quoted the minister as saying.
“The GCC is not an exclusive club, but the six countries share an identity and can work together to support the Arab League."
Established in 1981, the GCC groups Saudi Arabia, Qatar, the UAE, Kuwait, Bahrain and Oman.
The council is considering efforts by Yemen to join the alliance. The country was admitted to the GCC ministerial councils of education, health and social affairs and to the Gulf Football Cup in 2001, however its weaker economy and its status as a republic mark it out from its neighbours.
Sunday, February 3, 2008
Grand Mufti Asks Govt to Fix Price Problem
Grand Mufti Asks Govt to Fix Price Problem
P.K. Abdul Ghafour, Arab News
JEDDAH, 3 February 2008 — Sheikh Abdul Aziz Al-Asheikh, the Kingdom’s grand mufti and top religious authority, yesterday urged the government to fix prices of essential commodities in order to control rising prices.
“Every effort should be made to contain rising prices of goods all over the Kingdom,” the mufti said in comments published yesterday. “When we check prices of goods we can clearly see the greediness of traders who increase prices without any justification.”
He said increasing prices without any genuine reason was against the teachings of Islam. “There is nothing wrong in making profit but it should be within a reasonable limit and it should not harm others.”
He emphasized the need for price ceilings of every product in order to prevent traders from inflating prices by exploiting consumers’ assumptions that those price increases are due to inflation.
The mufti made this comment during Friday sermon at Imam Turki ibn Abdullah Mosque in Riyadh. He urged businessmen to fear God and warned them against making gains through prohibited activities and being greedy, without considering the interest of the country and people.
In a related development, the consultative Shoura Council has invited Finance Minister Dr. Ibrahim Al-Assaf for a meeting on Feb. 17 to discuss rising inflation and prices of essential commodities even after the 17-point program adopted by the Cabinet to contain the problem.
According to press reports, Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency (SAMA), which is the Kingdom’s central bank, will also attend the meeting to discuss major economic issues, including the de-pegging of Saudi riyal from a declining US dollar.
The six-nation Gulf Cooperation Council (GCC) suffered a loss of $60 billion in 2007 as a result of the linkage of their currencies to the dollar, whose value declined by 10 percent during the past year.
According to preliminary reports the six countries, including Saudi Arabia, suffered a loss of $37 billion due to a fall in the value of their exports and $23 billion as a result of an increase in the value of imports.
Shoura sources said the 150-member consultative body would discuss with the finance minister prospects of increasing budget allocations for different government departments and agencies.
Apart from increasing rates of inflation in the Kingdom, which rose to a record 6.2 percent in December last year, the GCC currency union and the delay in implementing some government projects will also figure high during Al-Assaf’s meeting with the Shoura.
Al-Assaf has ruled out suggestions that the Shoura was putting pressure on the government to lift the riyal’s peg to the US dollar. “The meeting is a good opportunity to discuss major economic issues and hear the views and proposals of Shoura members,” the minister told reporters.
P.K. Abdul Ghafour, Arab News
JEDDAH, 3 February 2008 — Sheikh Abdul Aziz Al-Asheikh, the Kingdom’s grand mufti and top religious authority, yesterday urged the government to fix prices of essential commodities in order to control rising prices.
“Every effort should be made to contain rising prices of goods all over the Kingdom,” the mufti said in comments published yesterday. “When we check prices of goods we can clearly see the greediness of traders who increase prices without any justification.”
He said increasing prices without any genuine reason was against the teachings of Islam. “There is nothing wrong in making profit but it should be within a reasonable limit and it should not harm others.”
He emphasized the need for price ceilings of every product in order to prevent traders from inflating prices by exploiting consumers’ assumptions that those price increases are due to inflation.
The mufti made this comment during Friday sermon at Imam Turki ibn Abdullah Mosque in Riyadh. He urged businessmen to fear God and warned them against making gains through prohibited activities and being greedy, without considering the interest of the country and people.
In a related development, the consultative Shoura Council has invited Finance Minister Dr. Ibrahim Al-Assaf for a meeting on Feb. 17 to discuss rising inflation and prices of essential commodities even after the 17-point program adopted by the Cabinet to contain the problem.
According to press reports, Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency (SAMA), which is the Kingdom’s central bank, will also attend the meeting to discuss major economic issues, including the de-pegging of Saudi riyal from a declining US dollar.
The six-nation Gulf Cooperation Council (GCC) suffered a loss of $60 billion in 2007 as a result of the linkage of their currencies to the dollar, whose value declined by 10 percent during the past year.
According to preliminary reports the six countries, including Saudi Arabia, suffered a loss of $37 billion due to a fall in the value of their exports and $23 billion as a result of an increase in the value of imports.
Shoura sources said the 150-member consultative body would discuss with the finance minister prospects of increasing budget allocations for different government departments and agencies.
Apart from increasing rates of inflation in the Kingdom, which rose to a record 6.2 percent in December last year, the GCC currency union and the delay in implementing some government projects will also figure high during Al-Assaf’s meeting with the Shoura.
Al-Assaf has ruled out suggestions that the Shoura was putting pressure on the government to lift the riyal’s peg to the US dollar. “The meeting is a good opportunity to discuss major economic issues and hear the views and proposals of Shoura members,” the minister told reporters.
Wednesday, January 30, 2008
Qatar studying 'major' currency change
by Dylan Bowman and Reuters on Wednesday, 30 January 2008
MAJOR CHANGE: Al-Ibrahim said Qatar could move without other GCC members. (Getty Images)Qatar is studying the possibility of a "major" change in monetary policy, which could include depegging its riyal from the flagging US dollar, the ruler's economic advisor said on Wednesday.
Ibrahim Al-Ibrahim said significant change was needed to address record inflation in Qatar, which hit 14% last year.
Al-Ibrahim said the government was looking at several policy options to reduce inflation, one of which was dropping the riyal's dollar peg.
"We are studying all kinds of possible ways to price our exchange rate or to price our currency," he told newswire Reuters. "A basket is possible."
Al-Ibrahim said Kuwait's decision to break ranks with its neighbours in May last year and link its dinar to a basket of currencies did not go far enough.
However, he stressed that Qatar wanted to make any decision in collaboration with other GCC member states, but left the door open for the Gulf state to move on its own if necessary.
"Kuwait really did it very little," Al-Ibrahim said. "Change should be major change, minor change won't solve the problem... Really, we would like to do everything we can through the GCC."
When asked if Qatar could act unilaterally, he said: "I think we can."
He said officials would make foreign-exchange policy recommendations to the government this year, without saying exactly when.
Gulf states' peg to the dollar forces them to track US monetary policy at a time when the Federal Reserve is cutting interest rates to stimulate the economy.
Qatar has slashed its deposit-facility rate by 150 basis points in four moves since September 18, tracking the Fed, which has reduced rates by 175 basis points.
It is the second time in a week Al-Ibrahim has raised speculation Qatar is seriously considering severing its ties to the dollar in an effort to bring down inflation.
The economic advisor said in comments published on Tuesday that Qatar was studying linking the riyal to a basket of currencies, stating that "pegging the riyal to only one currency has many disadvantages".
RELATED: Qatar studying dollar peg - official
Analysts described Al-Ibrahim's remarks as "sensible" and the clearest indication yet that Qatar could depeg from the dollar in order to tackle inflation.
"The comments are very sensible. Any currency reform needs to be substantial," said Marios Marathefis, Standard Chartered's regional head of research. Gulf states should allow their currencies to appreciate by 20% against the dollar, he said late last year.
Simon Williams, senior economist at HSBC, said: "The comments are a very strong sign that the Qatari authorities are seriously examining all of their policy options to deal with inflation, including monetary reform."
Countries across the Gulf are coming under increasing pressure to depeg or revalue their currencies due to the fall in the dollar, which has been blamed for driving up the cost of imports from places such as Europe.
"Inflation is definitely affected by a reduction in the dollar, but the major contributors are the very high rate of growth of the economy, coupled with the high rate of government expenditure," Al-Ibrahim told Reuters.
He said a Qatari plan to sell bonds to absorb liquidity would give the central bank more control over money supply.
"We have made a lot of efforts to affect the price of raw materials in building, for instance, and we are doing a lot of laws, mainly consumer protection laws, that really reduce inflation," Al-Ibrahim said.
The government is considering increasing salaries and subsidising food, he said on Tuesday.
MAJOR CHANGE: Al-Ibrahim said Qatar could move without other GCC members. (Getty Images)Qatar is studying the possibility of a "major" change in monetary policy, which could include depegging its riyal from the flagging US dollar, the ruler's economic advisor said on Wednesday.
Ibrahim Al-Ibrahim said significant change was needed to address record inflation in Qatar, which hit 14% last year.
Al-Ibrahim said the government was looking at several policy options to reduce inflation, one of which was dropping the riyal's dollar peg.
"We are studying all kinds of possible ways to price our exchange rate or to price our currency," he told newswire Reuters. "A basket is possible."
Al-Ibrahim said Kuwait's decision to break ranks with its neighbours in May last year and link its dinar to a basket of currencies did not go far enough.
However, he stressed that Qatar wanted to make any decision in collaboration with other GCC member states, but left the door open for the Gulf state to move on its own if necessary.
"Kuwait really did it very little," Al-Ibrahim said. "Change should be major change, minor change won't solve the problem... Really, we would like to do everything we can through the GCC."
When asked if Qatar could act unilaterally, he said: "I think we can."
He said officials would make foreign-exchange policy recommendations to the government this year, without saying exactly when.
Gulf states' peg to the dollar forces them to track US monetary policy at a time when the Federal Reserve is cutting interest rates to stimulate the economy.
Qatar has slashed its deposit-facility rate by 150 basis points in four moves since September 18, tracking the Fed, which has reduced rates by 175 basis points.
It is the second time in a week Al-Ibrahim has raised speculation Qatar is seriously considering severing its ties to the dollar in an effort to bring down inflation.
The economic advisor said in comments published on Tuesday that Qatar was studying linking the riyal to a basket of currencies, stating that "pegging the riyal to only one currency has many disadvantages".
RELATED: Qatar studying dollar peg - official
Analysts described Al-Ibrahim's remarks as "sensible" and the clearest indication yet that Qatar could depeg from the dollar in order to tackle inflation.
"The comments are very sensible. Any currency reform needs to be substantial," said Marios Marathefis, Standard Chartered's regional head of research. Gulf states should allow their currencies to appreciate by 20% against the dollar, he said late last year.
Simon Williams, senior economist at HSBC, said: "The comments are a very strong sign that the Qatari authorities are seriously examining all of their policy options to deal with inflation, including monetary reform."
Countries across the Gulf are coming under increasing pressure to depeg or revalue their currencies due to the fall in the dollar, which has been blamed for driving up the cost of imports from places such as Europe.
"Inflation is definitely affected by a reduction in the dollar, but the major contributors are the very high rate of growth of the economy, coupled with the high rate of government expenditure," Al-Ibrahim told Reuters.
He said a Qatari plan to sell bonds to absorb liquidity would give the central bank more control over money supply.
"We have made a lot of efforts to affect the price of raw materials in building, for instance, and we are doing a lot of laws, mainly consumer protection laws, that really reduce inflation," Al-Ibrahim said.
The government is considering increasing salaries and subsidising food, he said on Tuesday.
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