Monday, 11 September 2006
In a little less than three months Hamad Al-Sayari, Saudi Arabia's central bank (SAMA) governor, found himself duty-bound to assert the government position of retaining current riyal exchange rate and of sustaining current foreign reserves policy denominated in "green backs".
Al-Sayari delivered the stern Saudi position on the sidelines of a meeting of GCC central banks governors which began Saturday (Sept. 9), in Abu Dhabi(UAE) dealing with the proposed GCC central bank en route to members' common monetary policy. GCC finance ministers have requested the assistance of the EU central bank as early as 2002 to streamline guidelines for unified monetary/ fiscal policies and common currency.In previous meetings GCC members have committed to the US dollar as the group's common monetary denominator at a fixed exchange rate, to be determined at a later time, and a grace period of 5-8 years to iron out public revenues, current public debts ratios and taxes wrinkles.
Al-Sayari was quoted as saying, "There never will be any possibility to re-assess the riyal valuation process (internationally) and SAMA will not change its current foreign-exchange reserves management policy."
SAMA data released early for the second quarter, 2006, shows the dominance of the US dollar, gold and short and medium-term US treasury notes in the riyal international backing with more than $90 billion worth invested in the US government debt securities.
Almost three months ago, Al-Sayari had asserted a similar strong position ruling out any possibility of raising the parity rate between the riyal and the dollar ($1= SR3.75) cutting the road to currency speculators who, then were, betting against Abe's papers.
These statements come at a time when some Saudi leading importers publicly demanded the "disengagement" of the national currency parity with the dollar in light of increasingly expensive imports. Kuwait and the Emirates had gone a different route by diversifying their foreign reserves favoring the Euro.
GCC members' monetary unification is going "turtle-walk" by the current unwillingness of some member states to give in on an initial "GCC exchange rate band" against the adopted common denominator and to acquiesce to the tight guidelines to member governments to raise local monies.
Notwithstanding, Al-Sayari opted to talk to the Saudis when he belittled the significance of the loss of the Riyal's domestic purchasing power when stating that (local) inflation is limited (contained) laying the blame, if any, on common GCC monetary policy which demands fixed exchange-rate. SAMA data since 2001 have traditionally published cost-of-living index data showing domestic inflation below one percentage point; in return, studies systemically conducted by the two leading chambers of Commerce and Industry in Riyadh and Jeddah have consistently shown figures, for the same periods, in the range of (5.5%-7.5%) annually.
SAMA always copycats the US Fed with respect to the prime rate adjustment; since announcing formal estimates of the national debt concomitant with the budget of 1999/2000 SAMA always bought banks' funds at a quarter of a percentage above the US prime. But in marked departure, SAMA raised the Saudi libor a bit more than a quarter of Pct Pt while the Fed stayed the course.
By Omar S Bagour
© The Saudi Gazette 2006
