Dol­lar liq­uid­ity tight­ens in Gulf af­ter down­grades

The Pak Banker - - BUSINESS -

US dol­lars are be­com­ing more dif­fi­cult and ex­pen­sive to ob­tain in Gulf money mar­kets since Stan­dard & Poor's sharply down­graded the sov­er­eign credit rat­ings of three of the re­gion's oil ex­porters last week, bankers say.

The tight­en­ing of dol­lar liq­uid­ity, de­spite most coun­tries' cur­rency pegs to the dol­lar, which nor­mally fa­cil­i­tate dol­lar sup­ply by re­duc­ing ex­change rate risk, shows per­sis­tent wor­ries over the re­gion's abil­ity to cope with an era of low oil prices.

Some for­eign banks that sup­ply dol­lars to the Gulf have cut back their credit lines to re­duce risk. The re­sult could be higher costs for banks and com­pa­nies do­ing in­ter­na­tional busi­ness in the re­gion. "Liq­uid­ity in the lo­cal cur­rency is not a prob­lem at all. It is grow­ing. In cus­tomer de­posits, it's am­ple in Bahraini di­nars," Ab­dulka­rim Bucheery, chief ex­ec­u­tive of Bahraini bank BBK, told Reuters this week.

"Liq­uid­ity in for­eign cur­rency, in USD, is shrink­ing. And es­pe­cially with the down­grade of the coun­try, some in­ter­na­tion­als may find it timely to cut lines. If that hap­pens, I'm sure liq­uid­ity will be un­der ques­tion." The dol­lar squeeze in the Gulf is not so far as se­ri­ous as it was for a few months dur­ing the global fi­nan­cial cri­sis in 2008, but it is sig­nif­i­cant, es­pe­cially for smaller banks in the re­gion, bankers said.

US dol­lar sup­plies ap­pear most se­ri­ously af­fected in Bahrain and Oman, af­fected to some de­gree in Saudi Ara­bia, and al­most nor­mal in the UAE, which with its di­ver­si­fied econ­omy and huge for­eign as­sets is widely be­lieved to be able to han­dle cheap oil more com­fort­ably than its neigh­bours.

In early Jan­uary, it cost 0.3857 Omani ri­als to buy a dol­lar for de­liv­ery in 12 months' time; that price is now 0.4000, said a Gulf banker in­volved in quot­ing rates. The rate for Bahraini di­nars has risen to 0.3830 now from 0.3807 in Jan­uary.

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