And this time it let the dinar rise by a bit more than in the past. 1.7% is a lot more than the dinar moved the last two times (0.4% and 0.7%). Monica Malik of EFG-Hermes:
``They're revaluing because of the weakness of the dollar against other major currencies. The revaluation last time was just too small.''
The cumulative move is still small, but at least the trend is in the right direction. I increasingly wonder which GCC country will break next. There is no good fundamental case for further GCC currency depreciation when oil is above $70. Goldman wrote this morning:
We believe that the UAE and to a lesser extent Qatar are likely to follow Kuwait's example and allow for greater exchange rate flexibility, in time. Both economies are suffering from serious inflation problems, reinforced by imperfect sterilisation of inflows and rising food prices. The ultimate remedy to the inflation problem in both countries will have to be a fiscal one. But the oil bonanza continues and there is no sign of meaningful fiscal adjustment on the horizon. Under the circumstance, currency appreciation could help at least check imported inflation coming through trade weighted USD weakness and provide some relief.
The combination of US interest rates and high inflation rates means that real interest rates are now very very negative in several Gulf countries, especially Qatar and the UAE.
A part of me wonders if the Gulf's investment funds -- which increasingly seem to want Asian and European equities rather than US dollar bonds -- are contributing to the dollar's slide, and thus to some of the difficulties confronting GCC central banks (and expats). Check out Henny Sender's brilliant profile of Qatar's Investment Authority -- which clearly fancies buying companies, not just shares in companies. And at least for now, it isn't trying to buy a US company.