DUBAI: Saudi Arabia and four other Gulf states are likely drop their pegs to the tumbling dollar, with the UAE expected to move first, possibly in the next month.
Although they are under similar pressure to switch from fixed pegs to a currency basket as Kuwait did in May, the five states are likely to move separately, diminishing chances of meeting a 2010 monetary union deadline, a Reuters poll showed yesterday.
The poll of 24 analysts across the Gulf and Europe showed a majority seeing the UAE as the most likely candidate for a shift in the currency policy followed by Qatar.
The two countries have the region's highest inflation rates and have been most vocal after Kuwait about the impact on their economies of the dollar's slide to record lows.
"The Gulf countries are going through a new era, which requires a new FX regime," said Koceila Maames at Calyon, arguing dollar pegs have proved increasingly difficult to maintain.
The US Federal Reserve has cut borrowing costs by 75 basis points since September 18 to contain the fallout from a mortgage crisis, forcing Gulf central banks to follow to prevent currency appreciation and ignore inflation running at decade highs.
Of the 21 analysts who said the UAE would drop its peg to the dollar, 16 predicted a move before July and seven said it would happen in the next month.
Nineteen of 22 analysts expect Qatar to ditch the dollar peg, with 11 saying it will happen by the end of June.
Fourteen of 22 analysts said Saudi Arabia would drop the peg, with eight saying it would happen by mid-2008.
Saudi Arabia, Bahrain and the UAE cut interest rates in the past week to try to relieve pressure on their currencies.
Only a tight majority of analysts said Bahrain and Oman would allow their currencies to appreciate against the dollar, with any move more likely in 2008 or 2009 or later.
l Annual money supply in Bahrain, an indicator of future inflation, grew at its fastest pace in at least six years last month, rising more than 30 per cent for a second month, the central bank said yesterday.
M3, the broadest measure of money circulating in the Bahrain economy, jumped 32.8pc to BD6.09 billion on October 31, compared with BD4.59bn a year earlier.
That is the fastest pace since at least January 2001, data showed.
