Qatari Riyal needs 20 per cent revaluation to combat inflation

"Qatar, like other Gulf countries, has a strong relationship with the US and they are not about to abandon a friend in need," said Marios Maratheftis, Head of Research of the Middle East, North Africa & Pakistan at Standard Chartered Bank.

Over the past year the dollar lost about 40 per cent of its value, while the US economy fell into a laid back spin only recording a 0.5 per cent growth in 2007, placing it on a sideline of a recession.

Despite this, Qatari government officials have claimed that the decline in the US economy has not affected the country, as their main trading partners are in Europe and Asia.

But the devaluation of the dollar has had a negative impact on Qatar's inflation rate, which is currently close to reaching 14 per cent. "This is what triggered Qatar to resorting to revaluing their currency," said Maratheftis.

Revalue Qatari Riyal

He further told AME Info that in order for this process to be successful, the Riyal must be at least revaluated by 20 per cent.

"This percentage might seem to high but let us put into context, since January 2002 till today the New Zealand dollar has appreciated by 90 per cent in comparison to the US dollar, while the euro appreciated by 65 per cent."

Another reason for having a significant revaluation is to muzzle down expectations about inflation. "Speculation about inflation is what drives it up, so that's why it has to be contained by a proper revaluation."

Maratheftis expects changes to take place within the coming two months, while other GCC countries like Saudi Arabia have already called for a revaluation of their currency. King Abdullah of Saudi Arabia has met with senior officials at the Shura to hear presentations about the revaluation of the riyal and future of the dollar-peg.

Earlier Saudi Arabia has also voiced its commitment to the dollar by stating that only in the case where the dollar drops by 30 per cent it would consider depegging. This in reality is only likely to take place within two year.

Yet in Qatar's case the currency issue is not the only reason behind the bloated inflation rate, excess liquidity in the market is also a major set back.

"In order to drain the excess liquidity the government is going to establish a capital market," said Maratheftis. "Within the year we expect all theses changes to take place and would further boost Qatar's growth rate."

See also:
Stronger US dollar makes GCC revaluation safer
UAE waits for Saudi signal on revaluation