Gulf states called on to revalue currencies up to 40%

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POLICY SHIFT: Gulf states should revalue their currencies up to 40% to help deal with inflation, Janahi said. (Getty Images)

All Gulf currencies pegged to the ailing US dollar should be revalued by 30 to 40% in order to tackle record inflation across the region, the chairman of one of Bahrain's biggest investment banks told magazine Arabian Business on Monday.

“I don’t think they are going to depeg, but I think at a minimum the time has come for the Gulf states to revalue against the dollar, a revaluation of between 30-40% across the Gulf,” Ithmaar Bank's Khalid Abdullah Janahi said, speaking on the sidelines of the World Economic Forum (WEF).

“Prices are going up, we are net importers in the Gulf because we don’t produce anything, and most of the things that we import are non-dollar denominated.

"So we have the price going up due to the increasing demand, and then because of the dollar peg we are getting hit twice."

Gulf states' dollar peg limits the ability of central banks to fight inflation because the peg forces states to track US monetary policy in order to maintain the relative attractiveness of their currencies.

The US Federal Reserve has been slashing interest rates to stop the US slipping into recession at a time when Gulf states should be raising rates.

Janahi, co-chair of this year's forum on the Middle East in Sharm El Sheikh, Egypt, is just the latest senior business figure to call for a shift in monetary policy to help battle runaway inflation.

Emirates NBD Chairman Ahmed Humaid Al Tayer in March called on Gulf states to ditch their dollar pegs and move to a basket of currencies in order to deal with inflation.

In Bahrain, annual inflation was about 5.24% in March, driven by food prices, official data showed last month.

Inflation in the kingdom is expected to hit 8.5% by the end of this year, averaging around 6.1%, according to a recent poll of analysts.

Inflation across the GCC is expected to soar to at least 9% this year, spurred by rents and global commodity prices, the poll revealed.

Listed on the Bahraini and Kuwaiti stock exchanges, Ithmaar Bank has interests across the Middle East and North Africa (Mena) region, as well as South Asia, Asia-Pacific and Europe.

At the end of the first quarter, Ithmaar’s consolidated total assets stood at $4.5 billion, up 10% from the year ended 31 December 2007. Funds under management also recorded a steep hike of 18%, rising by $300 million to $2 billion at the end of the first quarter.

Besides holding significant investments in the banking, financial services and real estate sectors in different markets, the main direct activities of the bank include underwriting, private equity, Islamic financing and advisory services covering project financing, investments, capital markets and mergers and acquisitions.

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