Gulf states follow the Fed despite the rising inflation

_





Sultan bin Nasser al-Suwaidi, gov of the central bank in the UAE.

Gulf countries followed the US Federal Reserve’s latest cut in interest rates in order to hold their currencies steady against the dollar.

Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Kuwait cut their rates Thursday, January 31st, although Kuwait’s currency is no longer pegged to the dollar. Oman is expected to follow next week.

It was the second time in two weeks that the Gulf states followed the Fed.
Oil-producing Gulf countries state that pegging their currencies to the US dollar for easier currency management must match Fed rate moves to avoid speculative inflows of funds aimed at exploiting interest-rate differentials.

But with inflation often in double digit as the economies of the oil-rich states grow rapidly, Gulf central banks are coming under pressure to break their currency pegs with the struggling U.S. dollar and be free of Fed moves.

Qatar recorded inflation at 12,2% in 2007, and in December, Saudi inflation hits 6,5% - the highest in more than 12 years. Oman inflation figure for November was a 16-year high of 7,6%, and analysts put U.A.E inflation at above 10% for 2007.

source : The Wall Street Journal, Friday, February 1st, 2008.