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27 February 2024

Saudi council to quiz minister on peg

By Agencies

Saudi Arabia's finance minister and central bank governor will appear before a council that advises the king to discuss the riyal's peg to the US dollar and a surge in inflation, a newspaper reported on Sunday.

Inflation in the world's biggest oil exporter, which pegs its riyal currency to the dollar, surged to a 16-year peak of 6.5 per cent in December, partly driven by a rise in global commodity prices and a weak US currency.

The Shura Council, whose members are appointed by King Abdullah, will hold a meeting next month with Finance Minister Ibrahim Al Assaf and Hamad Saud Al Sayyari, the governor of the Saudi Arabian Monetary Agency, Okaz newspaper said.

The newspaper did not provide a source or say how it got the information.

Shura Council members Ihsan Bu Hulaiga and Mohammad Al Zulfa could not be reached for comment. The Shura was holding a session on Sunday, their aides said.

"Assaf will meet on the 10th of next month with the speaker and members of the Shura council with... Sayyari's participation," Okaz said.

"The session will raise key financial and economic issues, mainly the debate over de-pegging the riyal currency from the US dollar and the rise in inflation rates," it said.

The 120-member Shura council can review draft legislation and make recommendations, which are not binding on the government.



Questions about the feasibility of the Gulf dollar pegs have increased because the pegs force central banks to track US monetary policy at a time when the Federal Reserve is cutting interest rates to contain the fallout of a crisis triggered by mortgage problems.

As the Fed slashed 175 basis points from its benchmark rates since September 18, Saudi Arabia followed by cutting its key deposit rate to 3.5 per cent, on par with US rates.

Inflation is now above official interest rates, and the negative real interest rate environment could continue to deepen if the Fed cuts rates further this year as the market expects.

But Saudi Arabia has continually reiterated its commitment to the peg.

It would take a "precipitous" decline in the dollar for Saudi Arabia to change the value of its riyal against the US dollar, which has been fixed since 1986, deputy governor of the kingdom's central bank said last week.

The kingdom has been trying to offset inflationary pressures through measures subsidies on imported rise and baby milk, introduced last month after an order from King Abdullah.

The government also planned to help pensioners cope with inflation by providing them with assistance in paying utility bills, food and medicines, Al Eqtisadiah reported on Sunday.

Average inflation in the largest Arab economy is expected to accelerate to 4.1 per cent in 2008 from 3.8 per cent last year, a Reuters poll showed last month. (Reuters)