Bahrain to keep dollar peg despite US downgrade

Bahrain will keep its currency peg to the dollar following Standard & Poor's US rating downgrade, the Gulf state's central bank governor said in remarks published on Tuesday.

"The exchange rate policy followed suits our economic situation," Rasheed Al Maraj was quoted as saying by Bahrain's Arabic daily Al Ayam newspaper.

"The central bank is working to secure a stable financial policy to support economic growth in Bahrain and to help the commercial sector from the volatility risk in the dollar exchange."

His position echoed that of the UAE, which said on Sunday it stuck by its currency peg.

All Gulf Arab states other than Kuwait peg their currencies to the dollar and their fortunes are closely tied to US developments. Gulf states are also major investors in US Treasuries, which have remained in strong demand since Friday's S&P action.

S&P cut its US long-term credit rating amid concerns about the nation's budget deficits and climbing debt burden. The move contributed to wiping trillions off global markets on rising fears of a slowdown in the world's largest economy.

Bahrain's central bank head said in July the kingdom had no plans to change base interest rates. Its repo rate and one-week deposit rate have stood at 2.25 per cent and 0.50 per cent respectively since September 2009.

Analysts polled by Reuters in June cut the country's growth outlook for the second time in a row, to 2.7 per cent from 3.4 per cent.

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