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Kuwaiti dinar hits 18-year high agaist dollar

Kuwait's central bank allowed the dinar to appreciate on Sunday for the second time in a week, taking the currency to at least an 18-year high against a tumbling US dollar.

The dinar will trade up 0.11% around a midpoint of 0.28170 per dollar compared with 0.28200 on Thursday, the central bank said, the strongest since at least January 1989, according to Reuters data.
The currency of the Middle East's fourth-largest oil exporter has now risen 2.64% since May 19, a day before the central bank dropped its peg to the weakening dollar and adopted a basket of currencies. Kuwait has declined to give the composition of the basket.

The dollar tumbled on Friday, hitting two-year lows versus the Swiss franc as fears about losses in the US credit sector intensified.

The US currency declined to a record low last month against the euro in which Kuwait pays for more than a third of its imports.

"I expect the dinar, adjusted on a regular basis, to reflect the dollar's performance against major currencies," said Simon Williams, Middle East economist at HSBC.

The dollar last traded at 1.3780 against the euro in New York on Friday, down 4.43 percent since the start of the year.

The central bank says the dollar's decline on global markets is driving up inflation and making some imports more expensive. Kuwait's April inflation rose to 5.37%, from 5.15% in March.

Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah said on July 29 the basket gave the bank flexibility to track moves on global foreign exchange markets, state news agency KUNA reported.

"The central bank will be watching domestic inflationary trends closely," Williams said. "If they don't see price growth slowing into the fourth quarter they might well be tempted to allow the dinar to appreciate once again."

Kuwait and the five other Gulf states had agreed in 2003 to maintain pegs to the dollar to prepare for monetary union in 2010.

The UAE, Saudi Arabia, Bahrain, Qatar and Oman have repeatedly ruled out any change in exchange rate
policy. The UAE is unlikely to break ranks and revalue its currency, Citigroup said last week.

Following are the previous changes in the dinar's reference rate against the dollar this year:

July 31 - appreciates 0.16 pct to 0.28200

July 29 - depreciates 0.05 pct to 0.28245

July 26 - depreciates 0.11 pct to 0.28230

July 25 - appreciates 1.74 pct to 0.28200

July 12 - appreciates 0.40 pct to 0.28690

May 20 - appreciates 0.37 pct to 0.28806

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