Saudi Arabia 'should revalue its currency'

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Saudi Arabia should revalue its currency because imported inflation owing to riyals peg to the weakening dollar is hurting the Saudi middle-class, an economist said.

Saeed Al Shaikh, chief economist at National Commercial Bank, said a currency revaluation should be on top of the agenda to contain inflation in the country.

He said "the time has come for us to reconsider the continued pegging" of the Saudi riyal with the US dollar and called for a gradual ending of the peg.

"The impact of inflation has expanded to include the middle class," he said in a statement, adding that the problem is no longer limited to people in the lower income category.

Along with a revision of the riyal-dollar exchange rate, Al Shaikh suggested adjustment in wages and government subsidies on basic commodities to limit the impact of the rising cost of living in the country.

Expensive imports
The dollars weakness is making imports in the Gulf expensive as the regions currencies are tied to the greenback, which is losing value against the worlds major currencies. There has been speculation that the UAE and Saudi Arabia would revalue their currencies, but officials have ruled out exchange rate reforms in the near future.

The Gulf central banks track US interest rates to deter bets on the appreciation of their dollar-pegged currencies. Inflation in Saudi Arabia hit a 12-year high of 5.35 per cent in October.

Al Shaikh called for establishing a sovereign fund that should be in charge of managing national liquidity surpluses through investments. Export incomes of Gulf oil producers have been boosted by high oil prices. More organisation and professionalism is needed in the management of resources and surpluses, he said.

The economist stressed that the current global economic conditions represent a suitable climate for the launch of a Saudi sovereign fund as investment opportunities have increased due to the global credit crunch.

Reports said last month that Saudi Arabia was planning to establish a sover-eign wealth fund that may exceed $900 billion, which would likely be the largest in the world.

The Financial Times reported the effort was likely to be spearheaded by Saudi Arabias Public Investment Fund, which has a mandate to invest only internally. Previously, the Saudi Arabias oil wealth had gone partly to the kingdoms central bank, the Saudi Arabian Monetary Authority, and partly into the coffers of the government.