There is a 60 per cent probability that a GCC-wide revaluation of currencies against the US dollar will take place this year and the shift will be between five and 10 per cent, an investment bank said yesterday.
Cairo-based EFG-Hermes said the move is likely to be a revaluation rather than a move to a currency basket and increased its magnitude forecast from three to five per cent. In a note to investors, EFG said the aggressive rate cuts in the US, followed by those in the Gulf countries, increase the probability of currency reform.
“We have highlighted in our research that key factors in the timing of a move from the GCC will be aggressive interest rate cuts in the US and/or marked weakening in the dollar. Although the dollar has found some support with the recent turmoil in global markets, downside risks remain,” the bank said.
“We maintain our view that there is a greater than 60 per cent probability of a move away from the dollar-peg in the first half of this year by one or more states. The reform is likely to be a revaluation rather than a move to a currency basket. We had originally forecast a GCC-wide revaluation would be in the magnitude of three to five per cent. However, with the surge in inflation across the region, we now believe a revaluation would more likely be around five to 10 per cent,” EFG analysts wrote.
The inflation rate is reaching multi-year highs in Oman and Kuwait.