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St. Louis business columnist quotes GATA board member Wistar Holt
From Reuters
via Gulf Times, Doha, Qatar
Friday, May 12, 2006
http://www.gulf-times.com/site/topics/article.asp?
cu_no=2&item_no=86033&version=1&template_id=48&parent_id=28
Kuwait revalued the dinar for the first time in 17 months on
Thursday, sparking a rally in regional currencies and intense market
speculation that Saudi Arabia, the world's top oil exporter, would
follow.
A central bank spokesman said the Kuwaiti dinar had been re-valued
for the first time since January 2005 to allow a 1 percent
appreciation against the dollar.
The dinar, which like other currencies in the world's main oil-
exporting region, is pegged to the dollar, strengthened to 0.2891 to
the dollar from 0.2920 a day earlier.
The Gulf Cooperation Council countries are working toward currency
union in 2010. Speculation swept regional markets that other
countries may follow suit.
"It makes sense as all of them are facing substantial inflows that
they are having to sterilise to dampen inflation," said Richard Fox,
sovereign credit analyst at Fitch Ratings. "The issue now is what
the other GCC countries may do and if this is a precursor to a more
flexible GCC currency."
A Qatari central banker said the country had no plan yet for a
revaluation. Officials in the United Arab Emirates and Oman declined
comment.
The Gulf states, all staunch US allies, also came under rare public
pressure from the US this year to address their mounting current
account balance of payments surpluses.
A US Treasury paper in March highlighted the scale to which soaring
oil prices have boosted the current account surpluses of the big
crude-exporting nations and exaggerated US deficits. It said oil
exporters now needed to play a role in unwinding those gaps.
At their April meeting in Washington, finance chiefs from the Group
of Seven industrial powers also called for shared responsibility for
redressing global imbalances and said it was up to the market to do
so.
"This is consistent with the G7 communique," said Dwyfor Evans at
Bank of America. "If you're going to revalue, it makes sense to do
it when oil is above $70 a barrel."
Kuwait usually matches US Federal Reserve rate changes within days
but has not followed the last few moves.
It has so far left the benchmark dinar discount rate unchanged at 6%
after Wednesday's 25 basis points Fed hike but raised its repo rate
to 5.625%, an increase of 0.25%.
The Saudi riyal surged 100 ticks against the US dollar hitting day's
high of 3.7414, up around a quarter percent, after closing at 3.7503
on Wednesday.
Steve Brice, Middle East economist at Standard Chartered Bank in
Dubai, said the Saudi appreciation was driven by hedge fund activity
in the riyal forward market, which started after the central bank
failed to match the last Fed move.
"We were forecasting a revaluation from Kuwait but not one from
Saudi," Brice said.
Bankers said there was talk the riyal could be revalued soon. Saudi
shares, which have been crashing since February, recovered most of
their session losses on Thursday after the revaluation talk began.
"After Kuwait changed its intervention band on the Kuwait dinar
there was increased speculation that there would be a regional
revaluation of the currencies against the US dollar," a Riyadh-based
trader said.
"Speculation of that has sparked selling of the US dollar and buying
of the Saudi riyal. There is no official news it is only
speculation -- mostly from offshore players."
As oil prices have surged in recent years, the flow of petrodollars
into Gulf economies have led to upward pressure on their currencies.
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