Doha – Mubasher: The Qatari riyal has fallen below its peg against the US dollar as the diplomatic rift between Qatar on one hand, and several Gulf and Arab states continues, Reuters reported.
Pegged at QAR 3.64 per dollar since 2001, the Qatari currency has fallen to as low as $3.6680 following the cutting of diplomatic and transport ties initiated by Saudi Arabia, the UAE, Egypt and Bahrain with Qatar on 5 June.
Previous declines in the Qatari currency’s price against the USD were usually one-day events; however, this drop marks “the weakest spot market rate since July 2005,” the news agency said, citing data by Thomson Reuters.
Gulf bankers in Qatar and abroad said they did not expect the spot market quotes to show any change in Qatar’s determination or ability to keep the peg, noting that they believe that the fluctuations appear to be the result of sanctions imposed against Qatar, which have distorted trading between banks.
While many banks in the Gulf states that broke diplomatic ties with Qatar have suspended trading with Qatar’s firms and institutions, international banks have become cautious and are waiting to see what the diplomatic crisis will lead to.
This has resulted in the QAR’s decline owing to a slowed foreign exchange trading, especially between banks operating onshore and offshore, and to dollar supply shortages.
"The fact that the spot quote has gone below the peg is due to low liquidity, not a change in Qatar's policy," a Saudi bank treasury manager said, speaking on condition of anonymity because of the politics involved.
Meanwhile, a Dubai-based fixed income portfolio manager noted that the issue "might be a sign of a little speculative pressure, hard to say. It doesn't seem like banks have had massive outflow pressure from Qatar."
A treasury banker at a Doha-based Qatari bank told Reuters that his bank was able to obtain the dollars it required from the Qatar Central Bank (QCB), adding that his bank was selling the US currency at QAR 3.6415.
"[Doha has] sufficient foreign currency reserves to meet all requirements", QCB governor Abdullah bin Saoud Al-Thani said in his single public statement since the rift occurred, although he did not explicitly mention the peg.
The QCB has $34.5 billion in net foreign reserves, while the Qatari government may have north of $200 billion of additional liquid assets in its sovereign wealth fund, which means that for now, Qatar appears to in no danger of running out of money to defend the peg.
"There is no reason for the riyal to be de-pegged in the short term," said the Qatari banker. "They have enough resources."
