Saudi council backs riyal revaluation
http://www.ft.com/cms/s/0/65c758ec-5...nclick_check=1
By James Drummond in Abu Dhabi
Published: July 16 2008 03:00 | Last updated: July 16 2008 03:00
A committee drawn from a council that advises the Saudi king will recommend revaluing the riyal, refuelling speculation about the fate of the currency.
A committee in the Shura Council, which has an advisory role, will recommend to King Abdullah that the authorities revalue the riyal by up to 30 per cent, Waleed Arab Hachem, a Shura Council member, told news agencies yesterday.
He said the proposal would be put before the Saudi king as early as next week.
Last summer a wave of speculation that the riyal peg to the dollar, first adopted in 1986, would be dropped swept through financial markets.
However, the chatter has diminished substantially since then, after the central bank ruled out any revaluation.
Brad Bourland, chief economist at Jadwa Investment in Riyadh, said the council's advice was also unlikely to lead to any adjustment.
This latest recommendation follows a report from an advisory body in Abu Dhabi, in the neighbouring United Arab Emirates, which last week floated the idea of abandoning a dollar peg for the dirham for a basket. Both Saudi Arabia and Abu Dhabi are sizeable holders of US dollar assets.
Any adjustment in their exchange rate policies is likely to impact severely on the value of the already battered US currency.
John Sfakianakis, chief economist at SABB in Riyadh, said yesterday he thought Mr Hachem's recommendation was likely to have been stimulated by the impending summer holidays.
Wealthy Saudis were likely to feel the weakness of the dollar and of their own currency as they travelled abroad, he noted. "They do see and feel the difference," Mr Sfakianakis said.
He believed a debate about the currency was only natural given inflationary pressures in Saudi Arabia.
In the year to May inflation in Saudi Arabia was 10.4 per cent, while in April it was 10.5 per cent, according to the central bank figures. It is expected to be 9.3 per cent this year, according to SABB forecasts, as opposed to 4.1 per cent last year.
* The Saudi Arabian government has approved the setting up of a state investment vehicle considered by many as the oil-rich nation's first sovereign wealth fund, writes Andrew England in Abu Dhabi.
The vehicle - Sanabil al-Saudia - will have an initial capital of SR20bn ($5.3bn, €3.4bn, £2.7bn).
Copyright The Financial Times Limited 2008
Originally Posted by Dinar_OS
