Soft-pegged Gulf states in a fix over tumbling dollar

KUWAIT CITY, March 17, 2008 (AFP) – Oil-rich Gulf Arab states hit by high inflation are under pressure to revalue their currencies or drop the peg to the flagging US dollar, but de-pegging will come at a cost, analysts say. “If we want high oil prices we should not worry about the (high) price of tomatoes,” a senior manager of Kuwait’s Commercial Bank, Abdulmajeed al-Shatti, told a seminar last week. The widely anticipated new rate cut by the US Federal Reserve will intensify the debate about the peg, as it will become increasingly difficult for monetary decision-makers in the region to match successive cuts, experts told AFP.

“I think these countries can’t keep ignoring the weakness of the US currency and the repeated interest rate cuts,” said a former chief of the Kuwait Investment Authority, Ali al-Bader.

“They have either to peg to a basket of currencies… or gradually revalue their currencies, otherwise the cost will be too high,” he added.

Kuwait was the only member of the Gulf Cooperation Council (GCC) to drop the dollar in favour of a basket of currencies last May. Since then the Kuwaiti dinar has appreciated about 7.7 percent against the greenback.

The remaining GCC states — Bahrain, Oman, Qata