A pedestrian walks past the United Arab Emirate's central bank in Abu Dhabi, U.A.E. Photographer: MATILDE GATTONI
Central bank governors from leading economies in the Middle East and North Africa are attending a conference in Abu Dhabi, commenting on Gulf currency pegs and the art of regulating markets without stifling growth. Here are some of the key comments:
The governor of the Saudi Arabian Monetary Authority said the kingdom’s policy makers are under “much less” pressure than a couple of years ago when oil prices were roughly half of what they are now. Hours before Federal Reserve Chairman Jerome Powell testifies in his first public comments since taking office, Alkholifey said the Saudi regulator has the tools to deal with any future Fed decision.
“We’re pegged to the dollar and absolutely we’re following the developments in the market, particularly the Fed moves. Whenever the moves happen, we still have enough tools to deal with it,” he said. “In early 2016, fundamentals were probably weaker than what we have right now, particularly in the oil market. So the pressure will be much less.”
For more on the Saudi economy, read this story on consumer inflation.
North Africa’s largest economy needs a “complete revamp” of its banking laws to introduce “sharp and crisp” governance for the sector, the central bank chief said.
“We don’t want people to feel relaxed in the banking system. Our objective in regulation isn’t just to defend financial stability,” Amer said. “The objective is to be able to achieve financial stability by bringing financial inter-mediation to the market in a real way.” Authorities will first have to win broad support in parliament and society for the overhaul, he said.
Click here for a story on how Egypt overcame a crippling dollar shortage.
Despite the recent introduction of value-added tax, consumer inflation will likely remain benign in the U.A.E., the governor told Bloomberg in an interview. The U.A.E. will match any rate hikes by the Fed in 2018 when non-oil economic growth is expected to be around 3.5 percent to 3.6 percent, he said.
During a panel discussion earlier, Al Mansoori said the U.A.E. “learned its lesson” during the last global financial crisis and is now making sure that no particular sector is excessively exposed to foreign capital inflows.
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The Gulf nation’s peg to a basket of currencies now provides leg room for the central bank as it tries to strike a balance between keeping a positive spread between the dollar and its local currency and keeping the economy stimulated, the governor said.
“We exercised that relative flexibility in the the past two hikes from the Fed back in June and December 2017 in which we didn’t increase our policy rate in order not to increase the cost of borrowing at a time when you want to stimulate the economy and encourage private sector participation,” Al-Hashel said. By combining different instruments of monetary policy, the bank is trying to keep borrowing costs at levels that don’t hinder growth while maintaining a level of “attractiveness” in local currency deposit rates, he said.
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