Qatar considers dropping dollar peg

Qatar considers dropping dollar peg

By Simeon Kerr in Dubai

Published: January 30 2008 19:59 | Last updated: January 30 2008 19:59

Qatar is reviewing its currency policy and could revalue or drop the dollar peg as the booming Gulf state struggles to tame inflation while the US reduces interest rates to head off a recession.

Qatari officials on Wednesday said the gas-rich emirate was considering revaluing its currency or linking it to a trade-weighted basket of currencies as well as other policy proposals aimed at cooling rampant inflation of up to 15 per cent.

Abdullah al-Attiyah, the oil minister and deputy prime minister, on Wednesday said the central bank and finance ministry were studying a currency revaluation, but he did not say when any decision would be made.

Ibrahim Ibrahim, an economic adviser to the government, said official policy remained to maintain the Qatari riyal’s peg to the dollar, but that could change with time. “The official position is we won’t delink but that doesn’t mean for ever -- it means in the foreseeable future,” he told the Financial Times.

Qatar may host the region’s largest US military base but it is also known as a policy maverick, perhaps less daunted than most of its Gulf neighbours about taking the politically sensitive decision of severing the long-held tie to the dollar.

Kuwait last year became the only Gulf country to move from a dollar peg to a basket of currencies. It has allowed the dinar to rise 6 per cent since its decision.

After speculation of an imminent revaluation in the United Arab Emirates last month, the five Gulf Co-operation Council states still linked to the dollar agreed to ?maintain the peg and co-ordinate policy while seeking to unify their currencies by 2010.

Qatar, which is a member of the GCC, is constrained in its fight against inflation because the dollar peg forces it to track US monetary policy.

Doha’s central bank has cut its deposit-facility rate by 150 basis points in four moves since September 18, tracking moves by the US Federal Reserve.

However, a recent central bank report attributed rising inflation mainly to domestic, growth related factors.

Mr Ibrahim, who heads a government body that charts econ?omic development, said other inflation-taming measures were under consideration. He said Doha will issue bonds to soak up liquidity and give the central bank more control over monetary policy, and is considering reducing government spending and placing lending caps on banks.