Saudi Arabia Will Stick To Its USD Currency Peg
$OIL, $MS
Central bank Governor Fahad Al-Mubarak said Saudi Arabia will stick with its currency peg as long as Crude Oil underpins the economy, dismissing speculation that the country’s currency system is coming under pressure.
Investors have increased bets that Saudi Arabia and others in the region will be next to drop their pegs after China devalued the RMB Yuan and Kazakhstan allowed its currency to float.
One-year forward contracts for the Saudi Riyal, an indicator of where investors expect it to trade, are near the highest since Y 2003.
“Looking at our economy now, in the near future and for many years to come, oil will be dominant in our economy so keeping the peg will be our policy,” Al-Mubarak said in a TV interview in Ankara, where he attended the G-20 meeting of global FM’s. “Stability is very important to the Saudi government, to Saudi investors and international investors.”
The governor said he expects the economy to expand more than 3% this year, exceeding the 2.8% median estimate in a recent survey. That will help the budget deficit better the International Monetary Fund’s (IMF) forecast of a gap equal to 20% of economic output, he said.
“We are confident that our economy will continue to grow,” especially in the private and non-Oil sectors, said the former Morgan Stanley (NYSE:MS) banker.
Saudi Arabia’s non-Oil business activity accelerated to a 5-month high in August, according to the Emirates NBD and Markit Economics Purchasing Managers Index (PMI).
“I am not concerned,” Mr. Al-Mubarak said when asked about the drop in the Kingdom’s equity market. “Saudi Arabia is not immune from international markets. We’ve seen it in the currency forwards market, in the stock market. It went down and rebounded. We are part of the global system.”
Have a terrific week.
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Paul Ebeling
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