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Jeddah: Gulf Cooperation Council leaders will decide in December whether to delay monetary union among the six states that are divided over how to respond if more US interest rate cuts test currency pegs to the sliding dollar.
Gulf finance ministers and central bankers met in Saudi Arabia to review the 2010 deadline for creating a single currency in the region - a timetable all six say will be difficult, if not impossible, to meet.
With a widely-anticipated delay prompting investors to bet on the appreciation of dollar-pegged Gulf currencies, the six states agreed to keep foreign exchange policy unchanged, although each would steer its own course on interest rates.
'Need to be consistent'
"There is a margin for each state to follow monetary policies that correspond to its domestic conditions," Hamad Saud Al Sayyari, governor of the Saudi Arabian Monetary Agency, told reporters after the talks in the port city of Jeddah.
The International Monetary Fund said the Gulf needed monetary policy that was consistent with dollar pegs, after the six states broke ranks on their response to a US interest rate cut last month, raising speculation about currency revaluations.
A dollar peg "requires following monetary policy that is coherent with that alternative", IMF Managing Director Rodrigo Rato told reporters after meeting Gulf Arab officials in Jeddah.
"It was clear that the 2010 deadline was difficult to meet. There has been some difference in the response by the Gulf countries to the US interest rate cut," Monica Malek, economist at EFG-Hermes, told Gulf News yesterday.
Malek said shifting away from the dollar peg to a basket of currencies could be a medium-term move. "This will give the Gulf countries' monetary policies some flexibility," Malek said.
- With additional inputs from Saifur Rahman, Business News Editor
Have your say
How would the delay in GCC Monetary Union impact the Gulf economies? Do you think they should announce a new deadline? If yes, what do you think is a realistic deadline?
Your comments
It is sure that the UAE has to follow the way of revaluating their currency because the inflation in this country is rising every day, but more than that removal of this dollar peg is a better thing.
Lijo
Sharjah,UAE
Posted: October 28, 2007, 11:50
They should peg their currency to the euro. More stable, less surprises. As the UAE dirham declines, investors worry, because $100,000 Canadian dollars, for example four years ago, equalled Dh240,000, now, you need Dh377,000 to buy 100, 000 Canadian dollars. So for people sending money over seas, it is a big concern.
Tony
Toronto,Canada
Posted: October 28, 2007, 11:42
They should announce a new deadline as early as possible because a lot of people working in the Gulf are losing their savings by up to 20 per cent because of the effects of the dollar devaluation.
Bipin
Dubai,UAE
Posted: October 28, 2007, 08:34
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