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Gulf to coordinate reponse on US rates

Central banks of six Gulf oil producers will meet to coordinate a response to any U.S. interest rate cut, the United Arab Emirates central bank said on Tuesday, signalling growing regional concern about inflation.

A regional meeting on interest rate policy would be an unusual step for the central banks of the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman, which have pegged their currencies to the U.S. dollar.
In most cases they routinely track moves by the U.S. Federal Reserve.

A Reuters poll of U.S. primary dealers this month showed 11 out of 18 expecting the Fed's next move would be a rate cut. Most Gulf central banks are worried about rising inflation and any Fed cut would make their attempts to contain it more difficult.

"We will meet and discuss that, if we got to that point. We will do whatever is necessary for our countries," Sultan Nasser al-Suweidi told reporters.

"We will maintain our common monetary policy."

With the dollar sliding this year and touching a record low against the euro in April, markets have been betting that at least some of the Gulf states would revalue their currencies to help to contain inflation from imports denominated in currencies other than the dollar.

Suweidi dismissed any suggestion that imported inflation could trigger any change in currency policy in the UAE, one of two countries tipped in a Reuters poll of analysts in March as candidates for revaluation.

"The decline of the dollar is a net good thing for the UAE economy. It's good for local industry, manufacturing and tourism," he said.

A shortage of housing and office space were the main drivers of inflation, he said.

Kuwait, the top revaluation candidate in the Reuters poll, was also committed to leaving its dinar pegged to the dollar, Saudi central bank governor Hamad Saud al-Sayyari told reporters.

"We agreed unanimously not to change to our currency policy. Kuwait was with us on that."

The dinar has come under the most pressure to appreciate from speculators betting the central bank had little incentive to defend the peg after Oman opted not to join Gulf single currency by a 2010 deadline, casting doubt on the timetable.

Kuwait's central bank has cut key interest rates three times in the past six weeks to deter speculators and ease pressure on the currency.

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