All I can say is, he says...
Quote:
Originally Posted by
adm
GCC inflation to remain high: Report
Bahrain Tribune - 20/01/2007
(MENAFN - Bahrain Tribune) Despite rising inflation and strong growth in the GCC both fiscal and monetary policy are set to become more expansionary, Deutsche Bank has said in its global markets research for emerging markets. Inflation is therefore likely to remain at historically high levels putting the spotlight on the limitations of a US-led monetary policy and possibly a common currency. The decision to adopt a common currency will nevertheless remain a political one. The report, titled 'GCC: moving towards a common currency', said that the GCC economy with an estimated total size of $730 billion in 2006, a current account surplus on a par with China at $230 billion, around 40 per cent of the world's proved oil reserves and 23 per cent of gas reserves, have made this region a significant economic power.
The GCC plans to adopt a common currency by 2010 with Oman joining later. A common currency will require structural, monetary and fiscal convergence for the union to be successful. Structural and monetary convergence is already well-advanced reflecting shared energy dependencies and 20-year de facto pegs against the US dollar. Fiscal convergence is, however, low and will become more difficult as differing oil resources across countries will lead GCC countries to structurally diverge over time. Moreover, there is also no appropriate anchor to ensure sustainable fiscal convergence.
The benefits from a Gulf currency union are currently low with intra-regional exports only around five per cent and limited near-term scope for increasing trade integration. The costs are, however, also low with monetary sovereignty effectively surrendered some time ago.
The key issue in adopting a common currency is surrendering the option to realign national currencies in the future. The report finds scope for fx appreciation with current undervaluation estimated at 10-15 per cent for the BHD and AED and 25-30 per cent for the OMA and SAR. We estimate both the KWD and QAT to be around fair value although the Kuwaiti authorities could well opt for further appreciation.
Despite the increasing uncertainties about the timing of a GCC common currency it seems very likely that the nominal exchange rates will remain tied to the US dollar for the coming years and, as such, interest rates will continue to closely follow those in the US.
The currency pegs against the US dollar have, in general, been successful in keeping inflation under the control in the GCC. Average GCC inflation was just 1.9 per cent during 1980-2006 on a PPP-weighted basis and just 2.4 per cent using a simple average.
Higher inflation across the region partly reflects the increased liquidity (and money growth) associated with increased oil prices. Problems have, however, started to appear in an increasing number of countries with GCC inflation reaching a (projected) multi-year high at 5.1 per cent in 2006 (simple average).
The reason I posted was to let you know that if all goes as plan the Saudi's could reval at 25% to 30% above the current $.27.
Quote:
Originally Posted by
Pegasus
Which will bring it somewhere around .33, pretty close to what Neno is hearing for Iraq also.
If I compare another country to Iraq, Do it with Saudi. he stateded it was like being one in the same for now. Now, meaning until they tap more into Iraq Ocean of Black Gold.