Dinar surge vindicates Kuwaiti depeg - Emirates24|7

Dinar surge vindicates Kuwaiti depeg

 

Kuwait let its dinar rise against the dollar by the biggest margin in almost eight months on Thursday, taking its cumulative gain above seven per cent for the first time since dropping its peg in May to the falling US currency.

 

The dinar, the currency of the only Gulf Arab oil producer to drop its peg, will trade 0.78 per cent higher around a mid-point of 0.26910 against the dollar, compared with 0.27120 on Wednesday, the central bank said.

 

That is the biggest jump since July 25 when the central bank allowed the dinar to rise 1.74 per cent, and brings its cumulative gain to 7.45 per cent.

 

The dollar hit a record low against the euro and a 12-year low against the yen on Thursday, and shares fell as euphoria subsided about the latest helping-hand from the US Federal Reserve and reality – $110 oil and recession fears – returned.

 

"The large move maintains the real value of the dinar and underscores the advantages of Kuwait's more flexible currency regime," said Simon Williams, Middle East economist at HSBC Holdings in Dubai.

 

"Fixed pegs don't bring currency stability, they leave a currency fully exposed to the volatility of the dollar," Williams said.

 

The Fed's attempt to ease credit market strains by offering to accept mortgage bonds as collateral had sparked the biggest daily gains for five years on the Dow Jones industrial average and Nasdaq on Tuesday, but nagging worries about the state of the US economy overcame that initial optimism.

 

In Germany, Qatar's central bank governor said the oil and gas producer will keep its riyal pegged to the dollar at the same rate for now as it grapples with near-record inflation and expectations of imminent currency reform.

 

The Qatar riyal hit its highest in more than three months on Wednesday after Zawya Dow Jones reported the Gulf state may revalue its currency or drop its dollar peg next month, citing an unidentified Qatari central bank official.

 

Qatar may revalue its currency or drop its peg to the dollar next month, Dow Jones reported on Tuesday, citing at least one unidentified Qatari central bank official.

 

"The story has increased speculation on the riyal as markets are expecting Qataris will revalue their currency very soon," said Mary Nicola, an economist at Standard Chartered Bank in Dubai.

 

Like its neighbours in the world's biggest oil-exporting region, Qatar is constrained in its fight against inflation by the peg, which forces it to cut interest rates in line with the US Federal Reserve, which is trying to ward off recession.

 

In contrast, Gulf economies are surging on a five-fold rise in oil prices since 2002.

 

The falling dollar is contributing to about 40 per cent of inflation in Qatar, whose currency is undervalued by as much as 30 per cent, Qatar's Prime Minister told Reuters last month.  (Reuters)

 
 
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