GCC currency revaluation imminent, says economist.
Gulf countries are expected to significantly revalue their currencies in the next few months in a bid to address galloping inflation in the region, according to a leading economist. Marios Maratheftis, regional head of research, MENA and Pakistan, global markets, Standard Chartered, was in Muscat for a brief visit when he shared his views on the global economy and the region. "It is better to tackle the threat of inflation right now than to address the consequences later," Maratheftis said.
Talk of Gulf countries, particularly the UAE and Qatar, either revaluating or depegging from the US dollar have been doing the rounds for the last six to eight months. It has also been reported in regional newspapers over the last few days that the UAE's central bank will be forming a panel to coordinate the possible depegging, while Qatari Prime Min-ister Shaikh Hamad Bin Jasem Bin Jabr al Thani has said that his country could drop its dollar peg.
Maratheftis, who has the ears of the GCC's central banks' heads, expects the revaluation to take place possibly by April. "It'll probably happen when I'm on my vacation during the Greek Easter celebrations. They were to do it late last year, but deferred it at the last minute," he said. "My forecast is a significant revaluation of Gulf currencies. I expect it to be around 20 per cent. If the central banks are going to reva-lue it by five per cent or so, I would suggest that they do not even bother."
According to Standard Chartered's analysis, rising inflation in the Middle East is not helped by the link to the dollar that has led to continued cut in interest rates across the region although there is a domestic need for higher, not lower, rates and it seems there is no immediate desire to change currency policy.
Maratheftis has three different solutions for different timeframes for the region's currency conundrum. The solution he offers is simple. "In the short-term, peg it to a small basket of currencies, maybe two or three. Two, go in for a significant revaluation, perhaps 20 per cent or so. Three - in the medium-term - peg it against a much bigger basket of currencies to better reflect its value."
On the issue of a free float, Maratheftis feels it is a realistic solution. However, he does not see it happening in the next ten years because the region is not yet ready to cope with currency fluctuations. "We need a more mature economy and I see a free float after 15 years when you have reliable data released on a periodic basis."
As for the common Gulf monetary unit talked about for 2010, Maratheftis said, "A common currency will take much longer; 2010 is only an indication of intent. It took the European Union 40 years to launch a single currency. We need strong institutions for that. And one reason why it won't happen soon enough is because all countries don't think regional but only national."
oIn the short-term, peg it to a small basket of currencies, maybe two or three. Two, go in for a significant revaluation, perhaps 20 per cent or so. Three - in the medium-term - peg it against a much bigger basket of currencies to better reflect its value
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