Gulf Arab countries should not rush to decide on revaluing their dollar-pegged currencies because volatility in the U.S. currency is normal, Bahrain's central bank governor is quoted by a magazine as saying.
"You cannot take a short-term view and start ripping up your economic and monetary policy because of volatility during one snapshot of economic conditions," Middle East Economic Digest (MEED) quoted Rasheed al-Maraj as saying.
The weekly magazine had asked Maraj if Gulf Arab oil producers preparing for monetary union as early as 2010 aimed to revalue their currencies.
"We are aware that there is volatility in the markets, and that sometimes volatility is higher at certain adverse economic points in the cycle," Maraj said.
Pressure on Gulf Arab currency pegs was building as the dollar tumbled to record lows against the euro last month, pushing the Saudi Arabian riyal to a 21-year high and the UAE dirham to a 17-year peak.
Last week the U.S. currency climbed to six-week peaks against the yen and two-month highs versus the euro and a basket of currencies.
Maraj said Bahrain would stand by its peg to the dollar because it has "served the economy well and allowed it to grow."
"We are sticking with the current policy," he said.
The dollar pegs force Saudi Arabia and four of its neighbours with dollar pegs to shadow U.S. interest rates. The U.S. Federal Reserve has cut rates by 100 basis points since September 18 to contain the fallout from a mortgage crisis, and Gulf central banks are following to prevent currency appreciation.
Maraj accused foreign banks of unethically piling pressure on Gulf currency pegs and warned it would "take action" against anyone targeting its dinar, MEED reported last month. (Reuters)