Mon, Sep 07, 2015 - Page 15 News List

Central banker says Saudi Arabia will keep currency peg

Bloomberg

Saudi Arabian Monetary Authority Governor Fahad al-Mubarak said Saudi Arabia would stick with its currency peg as long as oil underpins the economy, dismissing speculation that the country’s currency system is coming under pressure.

Investors have increased bets that Saudi Arabia and others in the region are to be next to drop their pegs after China devalued the yuan and Kazakhstan allowed its currency to float. One-year forward contracts for the Saudi riyal, an indicator of where investors expect it to trade, are near the highest since 2003.

“Looking at our economy now, in the near future and for many years to come, oil will be dominant in our economy so keeping the peg will be our policy,” al-Mubarak said in a Bloomberg Television interview in Ankara, where he attended the G20 meeting of global finance chiefs.

“Stability is very important to the Saudi government, to Saudi investors and international investors,” he said.

The peg of 3.75 riyals to the US dollar has “served our economy well” for more than three decades and recent volatility in the forwards market reflected speculation, he said. “Definitely we’re solid and confident that this is a good policy for our exchange rate,” al-Mubarak said.

The governor said he expects the economy to expand more than 3 percent this year, exceeding the 2.8 percent median estimate in a Bloomberg survey. That is likely help the budget deficit better the IMF’s forecast of a gap equal to 20 percent of economic output, he said.

“We’re confident that our economy will continue to grow, especially in the private and oil industries,” he said.

Saudi Arabia’s non-oil business activity accelerated to a five-month high last month, according to the Emirates NBD and Markit Economics Purchasing Managers’ Index.

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