Qatar inflation in Q3 increases

Inflation in Qatar, one of six nations in the Gulf Co-operation Council (GCC) economic alliance, rose for a third quarter running in March to a near record of 14.75 per cent, data shows.

"Things are not getting better. Action should be taken," Ibrahim Al Ibrahim, the top economic adviser to the country's ruler, told Reuters by telephone from the capital when asked about dropping the peg.

Qatar's steamy rate of inflation is symptomatic of the roaring oil-fuelled growth in the Gulf states, which has increased pressure on the GCC to shed the policy of pegging currencies at fixed rates to the weak US dollar.

Gulf inflation is still rising at breakneck speed spurring calls for gas exporter Qatar to drop its dollar peg and casting a shadow over United States efforts to restore support for the greenback.

Experts say the Gulf states are likely to review their currency pegs – which forced them to cut interest rates in lock-step with the US Fed – as persistent inflation and booming economic growth threaten to destabilise their economies.

"Given the announcement yesterday and the increase in inflation in the GCC, it is likely in the second half of this year that they will place this decision back on the agenda," said Hany Genena, senior economist at investment bank Gulf Finance House.

Genena said a postponement of the planned 2010 GCC currency union would give the Gulf states leeway to modify their currency regimes. But he added that the weak dollar was not the major source of inflation, with supply bottlenecks and roaring demand also contributing.

"Depegging can help but is not the panacea. There has to be some other solutions to long-term supply side factors," he said.

Forward currency contracts indicated that investors were betting on a 2.95 per cent appreciation in the Qatari riyal in six months, 4.2 per cent in a year and 8.4 per cent in two years, showing that market participants were betting that the riyal would either revalue or be depegged. (Reuters)

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