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Thu 7 Feb 2008 10:26 AM

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Weaker US economy a 'new challange'

Gulf states must remain vigilent when addressing currency concerns warns Bahrain's central bank.

Gulf Arab oil producers face a new challenge to their dollar-pegged currencies because their economies are growing in contrast to the US, Bahrain's central bank governor said on Wednesday.

"There is a new challenge here in the form of a new phenomenon - a weakening US economy, juxtaposed by huge economic growth in the GCC and Asia," Rasheed al-Maraj said in a speech to the First Business Roundtable with the Government of Bahrain, in the Bahraini capital, Manama.

"However, we are taking a long-term view on the issue; there will be no knee jerk reactions based on short-term trends," Maraj said in the speech received by email.

Bahrain, the smallest Gulf economy, remains committed to its peg to the dollar, Maraj said.

Saudi Arabia, the UAE and Qatar, members of the GCC economic and political bloc, have all faced pressure on their dollar pegs as the US currency weakens and inflation at home surges.

"Our judgment, based on our analysis of available information and projections of trends, cautions us against a rush to abandon" the peg, Maraj said.

Still, the Gulf, where economies are growing on a quadrupling of oil prices during the last six years, needs to be "vigilant because it is in boom times that mistakes are made and guards are let down," Maraj said. (Reuters)

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