Gulf Countries Remain Commited To Dollar Peg

Central bank governors from the Gulf region, attending a conference in Abu Dhabi, reaffirmed their respective currency's commitment to peg to the dollar.

Ahmed Abdulkarim Alkholifey, the governor of the Saudi Arabian Monetary Authority said the kingdom’s policy makers are under “much less” pressure than a couple of years ago when oil prices were roughly half of what they are now.

Hours before Federal Reserve Chairman Jerome Powell testifies in his first public comments since taking office, Alkholifey said the Saudi regulator has the tools to deal with any future Fed decision.

“We’re pegged to the dollar and absolutely we’re following the developments in the market, particularly the Fed moves. Whenever the moves happen, we still have enough tools to deal with it,” he said. “In early 2016, fundamentals were probably weaker than what we have right now, particularly in the oil market. So the pressure will be much less.”

Kuwait's Central Bank Governor Mohammed Al-Hashel

Kuwait’s Mohammed Al-Hashel said the Gulf nation’s peg to a basket of currencies now provides leg room for the central bank as it tries to strike a balance between keeping a positive spread between the dollar and its local currency and keeping the economy stimulated.

“We exercised that relative flexibility in the the past two hikes from the Fed back in June and December 2017 in which we didn’t increase our policy rate in order not to increase the cost of borrowing at a time when you want to stimulate the economy and encourage private sector participation,” Al-Hashel said.

UAE bank governor Mubarak Rashed Al Mansoori

By combining different instruments of monetary policy, the bank is trying to keep borrowing costs at levels that don’t hinder growth while maintaining a level of “attractiveness” in local currency deposit rates, Al-Hashel said.

Consumer inflation

UAE bank governor Mubarak Rashed Al Mansoori said the UAE will match any rate hikes by the Fed in 2018 when non-oil economic growth is expected to be around 3.5 percent to 3.6 percent

He said despite the recent introduction of value-added tax, consumer inflation will likely remain benign in the country. 

During a panel discussion earlier, Al Mansoori said the UAE “learned its lesson” during the last global financial crisis and is now making sure that no particular sector is excessively exposed to foreign capital inflows.