The six Gulf Co-operation Council (GCC) countries are close to meeting the final criteria for a single currency to keep inflation within two percentage points of the average for the group, said Qatar Central Bank Governor Sheikh Abdullah bin Saud Al Thani.
“We are almost close to each other on this point,” the governor added.
The GCC countries adopted convergence criteria in December 2005, similar to those utilised by the users of the euro under the Maastricht agreement. Since then, Kuwait has dropped the dinar’s peg to the dollar, Oman has dropped out altogether and interest rate movements have varied in response to record inflation across the region.
Inflation is being managed by individual countries and there is no plan to discuss a collective strategy for bringing it down at tomorrow’s meeting, said Sheikh Abdullah. “Inflation is caused by bottlenecks, and it will come down,” he added.
Inflation in Saudi Arabia accelerated to a record 8.7 per cent in February as the cost of food and housing soared. Consumer prices in the UAE may have increased to 9.8 per cent in 2007 from 9.3 per cent in 2006, according to a Bloomberg survey. Qatar has the highest inflation in the GCC at 13.7 per cent in the fourth quarter.
The GCC states that peg their currencies to the dollar – Kuwait is the only exception – are struggling to control inflation that is either at or near a record. As a result, they face pressure either to revalue their currencies or drop their pegs to the dollar altogether as the link forces them to track US interest rates at a time when their economies are surging on a five-fold increase in oil prices during the past six years.
Commenting on the proposed GCC single currency, Sheikh Abdullah said it will be pegged to the dollar, and the greenback’s depreciation will not change that.
“We took a strong initiative in 2001 to stick to the dollar, and we are not moving from that,” he told reporters in Doha yesterday, ahead of a meeting of Gulf central bankers.
The governors will discuss harmonising financial regulations, bank payment systems and how to meet the agreed 2010 deadline for establishing the single currency. The dollar peg will not be discussed, he said.
Gulf countries have been under pressure to revalue their currencies or drop their pegs to the dollar after the currency dropped 20 per cent against the euro in the past two years and the US started cutting interest rates.
Gulf states can meet the inflation target necessary to form a single currency by 2010 as consumer price growth converges across the region, Sheikh Abdullah said.
“Inflation is due to increased government expenditure,” he said, adding that the global rise in commodities such as food, agricultural products and energy were also contributing factors to Qatar’s record high inflation, which some economists put at 14 per cent. (Agencies)
2010: Deadline set by the GCC for establishing a single currency
13.7%: Rate of inflation in Qatar, which is the highest in the GCC
GCC plans to keep single currency pegged to dollar