QATAR CENTRAL BANK GOVERNOR DOWNPLAYS CURRENCY

C O N F I D E N T I A L DOHA 001104

SIPDIS

SIPDIS

TREASURY FOR DAS SAEED
NEA/ARP FOR ABAGWELL AND SRAMESH

E.O. 12958: DECL: 11/26/2017
TAGS: EFIN QA
SUBJECT: QATAR CENTRAL BANK GOVERNOR DOWNPLAYS CURRENCY
REVALUATION TALK


Classified By: Charge d'Affaires Michael A. Ratney, reasons 1.4 (b) and
(d).


1. (C) Qatar Central Bank Governor Sheikh Abdulla Bin Saoud
Al Thani told Charge and Econoff November 25 that recent
press commentary speculating on an imminent move by GCC
countries' to depeg or revalue their currencies is overblown.
Sheikh Abdulla said Qatar's economy had been well served by
its dollar peg (essentially constant at 3.64 riyals to the
dollar since 1981) and he did not believe that depegging or a
revaluation would serve Qatar's interests at this time. He
cited Kuwait's recent move to a basket of currencies as
ineffective, noting that it had only complicated Kuwait's
budgeting process and monetary policy. He commented that the
IMF had for years pressed for a floating exchange rate but
had finally agreed that a fixed rate benefited Qatar and the
other Gulf states. Sheikh Abdulla believes that a
revaluation would do little to lessen Qatar's inflation,
which averaged over 14 percent in the first half of 2007. He
observed that inflation is being driven by demand in the
housing sector and that a currency revaluation would not
change this dynamic. Sheikh Abdulla said that if the
housing/real estate sector is excluded, Qatar's inflation is
only 4.1 percent.


2. (C) Sheikh Abdulla also said a currency revaluation would
not/not be on the agenda of the December 3-4 GCC Heads of
State Summit in Doha, though the Gulf leaders would discuss
the status of the proposed GCC currency union. (Note: This
contradicts recent remarks to the press by GCC Secretary
General Abderrahman Bin Hamad Al-Atiyyah who said that a
proposed revaluation would be on the agenda. It is likely
that if Gulf leaders were to discuss a revaluation, they
would do so in the context of their perennial discussion of a
currency union.) Sheikh Abdulla did not exclude a future
decision by Gulf leaders to revalue, though he thought it
would be 5 percent or less and serve more as a "signal" of
dollar weakness than an attempt to fundamentally alter the
GCC states' monetary policies.


3. (C) COMMENT: Sheikh Abdulla was clearly annoyed by the
rampant press and investor speculation over GCC currencies
and appeared personally opposed to any quick decision to
revalue the Qatari riyal. His comments reflect the overall
conservatism of Qatari society and the government's caution
in changing the basis of its monetary policy. While we
cannot rule out a revaluation, it would almost certainly be
done in concert with other Gulf states. The dollar's current
weakness is clearly a factor in Qatari government decisions.
For example, the Qatar Investment Authority (Qatar's state
investment arm),has been moving to diversify its holdings in
non-dollar based assets. Changing monetary policy would be
more complicated, however, as it would involve calculations
affecting Qatar's export of dollar-denominated oil and gas,
as well as its budget process based on that trade. For the
time being, we believe the Qatar Central Bank will approach
any revaluation with caution.

RATNEY