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London: Gulf states are unlikely to decide on a new deadline to launch a single currency until next year as the 2010 target for monetary union becomes "difficult", Bahrain's central bank governor said on Tuesday.
Bahrain, Saudi Arabia and three other states in the world's biggest oil-exporting region have been working towards monetary union for years, but the project has faced numerous hurdles as economies boom and inflation soars across the region.
"It's not about putting up arbitrary dates," Rasheed Al Maraj said. "Now we have come to a stage where we have almost completed our draft monetary agreement. This is a major milestone toward reaching our objectives."
Asked when Gulf states could revise the 2010 target, Al Maraj said: "I don't think this is going to be decided this year. Next year we will have a better or clearer picture."
Saudi Arabia's central bank Governor, Hamad Saud Al Sayyari, said last week Gulf states would decide on a "feasible" schedule for rolling out the single currency after reviewing the 2010 target at meetings this autumn.
At a meeting in June, Gulf central bankers finalised a draft monetary union deal as well as an agreement to set up the first leg of a regional central bank.
But rapid economic growth spurred by a seven-fold surge in oil prices since 2002 and inflation that is soaring to record- and near-record peaks were placing hurdles before a 2010 deadline set in 2001, Al Sayyari said.
Bahrain, the smallest Gulf economy, would likely expand expand 6.5 per cent this year and between six and seven per cent next year, Al Maraj said, adding the rapid regional economic growth was a main driver of inflation.
Dollar pegs in all Gulf states but Kuwait have also exacerbated inflation as the US currency tumbled to record troughs against the euro this year and last, driving up import costs.
Gulf central banks have also been forced to track seven US interest rate cuts since September to defend their dollar pegs, driving real interest rates -- the difference between official rates quoted by banks and inflation - into negative territory.
In Bahrain, inflation was 6.2 per cent in April, compared with the central bank's one-week deposit rate of two per cent and lending rates of 5.25 per cent.
The weaker dollar's contribution to inflation was only minimal, Al Maraj said, adding prices were being spurred by rising global food costs and regional growth.
Al Maraj said he was happy with current interest rate levels in Bahrain.
The monetary union project was pushed off the rails when Oman decided in 2006 not to join and Kuwait broke ranks with its neighbours in 2007 and severed its dollar peg.
It's not about putting up arbitrary dates. Now we have come to a stage where we have almost completed our draft monetary agreement. This is a major milestone toward reaching our objectives."
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