Saudi Ara­bia set to keep riyal pegged to US dol­lar

The Pak Banker - - Company& -

RIYADH: Turn­ing to in­ter­est rates in the King­dom, the world's oil su­per­power, the study ex­pected them to re­main low through­out 2011.

Saudi Ara­bia is set to keep its cur­rency the riyal pegged to the US dol­lar as it is ex­pected to re­main on the same track as in 2010 while in­fla­tion will re­main rel­a­tively high, a key in­vest­ment cen­tre in the Gulf King­dom said on Mon­day.

Al­though the Saudi Ara­bian Mon­e­tary Agency (SAMA), the coun­try's cen­tral bank, might slightly raise in­ter­est rates to­wards the end of 2011, they will re­main at his­tor­i­cal low lev­els, the Riyad­hbased Jadwa In­vest­ments said.

In a study sent to Emi­rates 24/7, Jadwa said SAMA could move rates up in­de­pen­dently from the US be­cause of an ex­pected re­cov­ery in do­mes­tic bank credit fol­low­ing a sharp slow­down in 2009 and 2010.

"The riyal will re­main pegged to the US dol­lar dur­ing 2011. We do not ex­pect any se­ri­ous dis­cus­sion on break­ing the peg or spec­u­la­tive pres­sure against the peg. Dol­lar move­ments are likely to be driven by the same themes as 2010; weak­ness in de­vel­oped economies and strength in emerg­ing economies," it said.

"As with 2010, we ex­pect cur­rency move­ments will be volatile and sub­ject to swings in sen­ti­ment about the rel­a­tive health of the economies of the US, Ja­pan and Eu­ro­zone. These are likely to can­cel each other out over the course of the year and there­fore think the dol­lar will be rel­a­tively lit­tle changed dur­ing 2011."

It said that con­sen­sus fore­casts point to a mod­est strength­en­ing of the dol­lar against euro and weak­en­ing of the dol­lar against yen by the end of 2011. It added that a fur­ther de­pre­ci­a­tion of the dol­lar against emerg­ing mar­ket cur- ren­cies is an­tic­i­pated as the more ro­bust per­for­mance of emerg­ing economies will con­tinue to draw in fi­nan­cial flows from de­vel­oped economies, which will be ex­ac­er­bated by cre­ation of very cheap money through quan­ti­ta­tive eas­ing.

To man­age these in­flows, more coun­tries are ex­pected to re­sort to cap­i­tal con­trols, which could raise in­ter­na­tional trade ten­sions, it said. Ac­cord­ing to the re­port, the main pres­sure point is cur­rently the in­flex­i­bil­ity of the Chi­nese yuan.

"There are un­likely to be for­mal US sanc­tions against China for cur­rency ma­nip­u­la­tion, but pres­sure for swifter ap­pre­ci­a­tion of the yuan will re­main strong, not just from the US, but in­creas­ingly from emerg­ing mar­kets, as most emerg­ing mar­ket cur­ren­cies have ap­pre­ci­ated strongly against the yuan…. faster yuan ap­pre­ci­a­tion ap­pears in­evitable." -PB News

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