Fitch: Gulf States will not abandon its currency peg
Fitch: Gulf States will not abandon its currency peg
Saturday 31/10/2015
LONDON (Reuters) –
And Fitch Ratings said that falling oil prices and a stronger dollar are pushing to link Gulf currencies in US dollars but is unlikely to cancel the policy. And connects the oil exporters in the region, such as Qatar, Saudi Arabia and the UAE in the framework of their currencies to the dollar followed a long-standing arrangements were logical when commodity prices were high and the dollar weak. Said Paul Gamble, Director in Fitch “There is pressure on the exchange rate peg in the region … but it will not happen. In fact, I do not expect any change in the exchange rate peg,” he said, adding that the cancellation would be a political decision and not economically. He said during a press briefing “to link the exchange rate is the most important factor which is in fact the only mainstay par with those economies which is supported by large reserves.” Linking oil producers currency prices on the Gulf pressure is not limited. Kazakhstan has dropped its peg to the dollar in August while Nigeria has already reduced the value of its currency twice in the last year has been re-so. Show contracts used to determine the direction of betting on the exchange rate that Gulf currencies are under pressure growing. The dollar has lost contracts recorded against the riyal for one year, the highest level in 12 years in August, but remains much lower than the high levels recorded in early 1999, when oil prices were hovering near ten dollars a barrel level. Gamble said “We have seen what is much worse,” he said, adding that the foreign currency reserves, which governments formed when oil prices were high certainly eroded. “The central banks – do not have the tools and is ready to move to the exchange rate regime is different from the link.” Saudi Arabia Fitch classified at + AA But its future outlook revised to negative at the end of August and attributed this to a decline in oil prices and increased spending after King Salman ascend the throne. Gamble said that the negative outlook indicates that the probability of the downgrade in the next two years exceeds 50 percent. He explained that the main reason “procedures would be inappropriate fiscal policy will lead to the erosion of sovereign reserves.” The data released in late August showed that the UK withdraw from reserves to cover the deficit but the pace of decline slowed in July since the government began issuing domestic bonds to cover part of the budget deficit.
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