Qatar sticks with dollar peg

RETAINS PEG: Gulf gas giant, Qatar, has kept its riyal pegged to the US dollar for now, despite soaring inflation. (Getty Images)

Qatar will keep its riyal pegged to the dollar at the same rate for now, its central bank governor said on Wednesday, as the oil producer grapples with near-record inflation and bets of imminent currency reform.

"The view of the Central Bank of Qatar until the moment is: there is no change in policy about depegging from the dollar," Sheikh Abdullah bin Saud Al-Thani told a news conference after a Gulf Arab meeting with the European Central Bank.

"We are still pegging the riyal against the dollar and we will continue at the moment," he said.

Since January, Qatar's prime minister, finance minister and an economic adviser to the Emir have spoken in favour of currency reform to fight inflation that hit 13.74% in the fourth quarter, just off a record.

The Qatar riyal hit its highest in more than three months on Wednesday after Zawya Dow Jones reported the Gulf state may revalue its currency or drop its dollar peg next month, citing at least one unidentified Qatari central bank official.

"I want to emphasise that we are still fixed against the dollar and we will continue pegging our currency against the dollar at the moment," Sheikh Abdullah said.

Qatar said this month it would freeze rents for two years on many housing contracts and the country is also considering introducing subsidies on some commodities to fight inflation.

Like its neighbours in the world's biggest oil-exporting region, Qatar is constrained in its fight against inflation by the peg, which forces it to cut interest rates in line with the US Federal Reserve, which is trying to ward off recession.

By contrast, Gulf economies are surging on a five-fold rise in oil prices since 2002. US crude oil prices crossed $109 on Wednesday.

Weakness of the dollar, which hit a record low against the euro on Wednesday, was contributing to about 40 percent of inflation in Qatar, whose currency is undervalued by as much as 30%, Qatar's Prime Minister told Reuters last month.

The US dollar is now "undervalued", Saudi Arabia's Central Bank Governor Hamad Saud al-Sayyari told reporters after the same meeting.

Inflation in the world's largest oil exporter, which hit an at-least 27-year peak of 7% in January, would begin to fall in the second half of the year due to a series of government inflation measures, Sayyari said.

Saudi Arabia has introduced subsidies, welfare payments, cost of living allowances for state employees and tighter bank lending restrictions this year to help offset the impact of inflation on its 25 million people. (Reuters)

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