2010 'too soon' for monetary union

Gulf states will reconsider a 2010 target for monetary union at an autumn meeting as the single currency plan is hindered by economic growth and soaring inflation, Saudi Arabia's central bank governor said.

In the clearest comments yet that the project has been pushed off the rails, Hamad Saud Al Sayyari said 2010 is "too soon" as Gulf economies surge on a near sevenfold rise in oil prices since 2002 and inflation jumps to record highs.

"2010 is too soon and therefore it is a big challenge," Hamad Saud Al Sayyari told Saudi-owned Al Arabiya television. "The programme will be discussed and reconsidered at a joint meeting with finance ministers this autumn," he said in remarks aired yesterday.

Central bankers from Saudi Arabia and four of its neighbours agreed at a meeting this month to create the nucleus of a joint central bank next year, but signalled the new common currency would not be in circulation by the agreed 2010 target.

The governors are to meet Gulf finance ministers to approve a final draft of the monetary union deal this September. They will also discuss a draft deal to set up a monetary council that will be the first leg of a central bank.

But while there is impetus from GCC member states to push forward the project, economic circumstances are slowing it down, Sayyari said. "Everybody is in agreement about the seriousness of the project and its importance," Sayyari said.

"But because the region is passing through an abnormal phase in economic activities and an increase in inflation… achieving this target is very difficult." Five of the GCC states had agreed to keep currency pegs to the US dollar until achieving monetary union.