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Sun 17 Feb 2008 11:45 AM

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Saudi meets on record inflation

Shura officials hold key meeting to discuss possability of revaluing riyal against plummeting US dollar.

Revaluing the Saudi currency against the dollar could help tackle inflation at a near record peak, but severing the link to the dollar would not be a solution, a Saudi councillor was quoted as saying on Sunday.

Saudi Arabia's Shura Council, which advises the king, is scheduled to meet with the finance minister and central bank governor on Sunday to discuss ways to fight inflation, newspapers reported.

Saudi inflation hit a 16-year high of 6.5% in December.

Among the topics of discussion will be whether to revalue the riyal against the dollar. Since 1986, the riyal has been fixed at 3.75 to the dollar, which has fallen more than 16% against a basket of currencies in the past two years.

"Revaluing the currency is a possible way to face inflation and it will be one of the solutions the council will present today," Osama Abu-Gherara, deputy chairman of the Shura Council's finance committee was quoted as saying in the pan-Arab daily Asharq Al-Awsat.

The deputy governor of the Saudi Arabian Monetary Agency, Mohammed al-Jasser, said last month it would take a "precipitous" decline in the dollar for Saudi Arabia to consider revaluing the riyal.

Saudi policymakers have repeatedly said the largest Arab economy would not sever its dollar link.

"I don't think that dropping the peg is a magical solution to curb inflation as there are neighbouring countries that changed the peg and their inflation reached record highs," Abu-Gherara said, in reference to Kuwait.

Kuwait, which severed its peg last May saying the weak dollar was driving up import costs, posted inflation at a record 7.3% in October, as housing and food prices soared.

Most inflationary pressures in Saudi Arabia were due to economic growth in the world's biggest oil exporter, Abu-Gherara said. The Saudi economy has surged on a near five-fold rise in oil prices since 2002.

"There are plenty of solutions we will be discussing with the minister," Abu-Gherara said, without being more specific.

Saudi Arabia's peg forces it to track US monetary policy at a time when the Federal Reserve is cutting interest rates to ward off recession.

Saudi Arabia has been trying to offset the impact of price rises on its 25 million people through measures including a plan announced last month to raise wages, welfare payments and subsidies. (Reuters)

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