Saudi riyal hits 21-year high

Dubai: Saudi Arabia’s dollar-pegged riyal surged to a 21-year high against the US currency last week after the world’s largest oil exporter said it would hold back from matching a US interest rate cut.

Speculation the kingdom may ditch its peg to the dollar has fuelled a frenzy of riyal buying which has pushed the currency’s spot rate to 3.7405 Saudi riyals, the highest since December 1986, according to Reuters data. Bids have touched 3.74 riyals per dollar, a breach of which should trigger central bank intervention.
Saudi Central Bank Governor Hamad Saud Al Sayyari said last week that the kingdom would hold back from cutting interest rates, even after the US Federal Reserve slashed its benchmark rate by 50 basis points to 4.75 per cent.

Possible peg break

“The main story has been the possible break of the peg with the Saudi riyal,” said Adam Cole, global head of FX currency strategy at Royal Bank of Canada. “This could lead to lack of confidence in the dollar as its role as a reserve currency is being put into question, which is also supporting the euro.”

Saudi Arabia has pegged its currency to the dollar at the same value since 1986 and has rarely moved out of step with US interest rate movements.

“You are going to see pressure on the riyal to take advantage of the policy rate differential,” said Caroline Grady, Middle East economist at Deutsche Bank.

Gulfnews