ISSN 2330-717X

Saudi Arabia Remains Committed To Pegging Riyal To Dollar

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Saudi Arabia remains committed to pegging the riyal to the dollar, according to Saudi Arabian Monetary Agency (SAMA) Gov. Ahmed Al-Khulaifi.

In an interview with Al-Arabiya channel, Al-Khulaifi rejected reports that the government would change its policy. This was a rumor that was allowing for speculation on the currency, he was reported as saying.

Al-Khulaifi said studies carried out by two Saudi economic researchers on the currency did not reflect SAMA’s views. The Kingdom is still committed to the current exchange rate of SR3.75 to the American dollar, he said.

“We have the means to maintain the exchange rate. Meanwhile, the Saudi economy continues to perform well despite the drop in oil prices. At the same time, the banking sector continues to operate normally, with their non-performing loans not exceeding 1.2 percent,” he said.

According to reports, SAMA has moved to clamp down on financial institutions facilitating riyal trades making bets on a devaluation.

The authority in January told the institutions to stop engaging in trades on riyal forward options, which are used by traders betting the Kingdom will cut the peg in these financial circumstances.

Financial experts in the Kingdom were quoted as saying that SAMA had recently launched a probe into the continuing use of financial products to set up bets on a devaluation.

Traders in the Gulf said speculation about currency devaluation had been revived by a paper on the Saudi currency published by researchers last month. The paper, entitled “Saudi Arabia’s Exchange Rate Policy: Its Impact on Historical Economic Performance,” studied a range of options for the currency.

This included using dollars instead of a local currency, to a free float allowing the exchange rate to rise and fall at will. The researchers stressed that the dollar peg remained the most effective tool for Saudi Arabia, arguing that devaluation would not help weather the fiscal storm of low oil prices.

While devaluation would increase the riyal value of dollar-denominated oil prices, the paper argued that the ensuing increase in import costs for the government and population would be “far from painless,” and instead supported spending restraint and borrowing.

But the paper added that the arguments for keeping the peg would weaken if the dollar depreciates, if there was an unacceptably high US inflation rate, or if the US and Saudi economic cycles diverged.


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Arab News

Arab News

Arab News is Saudi Arabia's first English-language newspaper. It was founded in 1975 by Hisham and Mohammed Ali Hafiz. Today, it is one of 29 publications produced by Saudi Research & Publishing Company (SRPC), a subsidiary of Saudi Research & Marketing Group (SRMG).

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