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Kuwait currency allowed to rise against dollar { May 11 2006 } Original Source Link: (May no longer be active)
http://english.aljazeera.net/NR/exeres/47E362C9-9175-40E0-9219-36296ACAD262.htmhttp://english.aljazeera.net/NR/exeres/47E362C9-9175-40E0-9219-36296ACAD262.htm
Kuwait revalues the dinar
Thursday 11 May 2006, 17:47 Makka Time, 14:47 GMT
Kuwait has revalued the dinar for the first time in 17 months, sparking a rally in regional currencies and speculation that Saudi Arabia would follow suit.
A central bank spokesman confirmed that the Kuwaiti dinar had been revalued on Thursday for the first time since January 2005 to allow a 1% appreciation against the dollar.
The dinar, which like other currencies in the world's main oil exporting region is pegged to the dollar, rose to 0.2891 against the dollar, up from 0.2920 a day earlier.
Kuwait, Saudi Arabia and their four neighbours of the Gulf Co-operation Council, which supply a fifth of the world's oil, are working towards currency union in 2010.
Speculation swept regional markets that other countries may follow suit.
Richard Fox, sovereign credit analyst at Fitch Ratings, said: "The issue now is what the other GCC countries may do and if this is a precursor to a more flexible GCC currency."
Account surpluses
The Gulf states, all staunch US allies, also came under rare public pressure from the United States this year to address their rising current account surpluses.
A US Treasury paper in March showed the extent to which a trebling of world crude prices since early 2002 had boosted the surpluses of the big oil-exporting nations and exaggerated US deficits.
It said oil exporters needed to take action to redress the balance.
At their meeting in Washington last month, finance chiefs from the Group of Seven industrial powers also called for shared responsibility for redressing global imbalances.
The group also urged emerging Asian economies, particularly China, to seek greater exchange rate flexibility so that their currencies can appreciate.
Oil value
Dwyfor Evans of the Bank of America said of Kuwait's action: "This is consistent with the G7 communique. If you're going to revalue, it makes sense to do it when oil is above $70 a barrel."
Kuwait usually matches US Federal Reserve rate changes within days but has not followed the last few.
It has so far left the benchmark dinar discount rate unchanged at 6% after Wednesday's increase of 25 basis points, but raised its repurchase rate by 25 basis points to 5.625%.
The Saudi riyal was also trading at the upper end of its range on Thursday, at 3.7460 a dollar. It had opened at 3.7505 and rose after the news about Kuwait's dinar.
Banking sources said there were rumours that the riyal could be revalued later in the day.
Saudi shares recover
Saudi shares, which have been battered by a crash since February, recovered most of their session losses on Thursday after the revaluation rumours began.
Rohit Kedia, currency trader at Emirates Bank, said: "Some people in the market think Saudi Arabia may follow Kuwait in revaluing its currency."
As oil prices have surged in recent years, the flow of petrodollars into Gulf economies has led to upward pressure on their currencies.
Steve Brice, Middle East economist at Standard Chartered Bank in Dubai, said the Saudi appreciation was driven by hedge fund activity in the riyal forward market, which started after the central bank failed to match the last US interest rate rise.
"We were forecasting a revaluation from Kuwait but not one from Saudi," Brice said.
The Saudi central bank said the speculation was unfounded.
Hamad Saud al-Sayyari, governor of the Saudi Arabian Monetary Agency, said: "The exchange rate of the riyal will stay as it is. And there is no truth to these predictions."
Reuters
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