Tuesday, July 17, 2007

Kuwait central bank allows 0.4 pct appreciation of Kuwait dinar

LONDON (Thomson Financial) - Kuwait's central bank has allowed the Kuwait dinar to appreciate by 0.4 pct, just six weeks after a similar move in May and reflecting the recent fall in the dollar to record lows against the euro.

The central bank's intervention rate now stands at 0.28685-0.28695 against the dollar, compared with 0.28801-0.28811 previously, according to the bank's website.

'As the US dollar weakness persisted over the past few weeks, it was a surprise that the Central Bank (other-otc: CHPA.PK - news - people ) of Kuwait did not adjust the intervention rate earlier,' said HSBC (nyse: HBC - news - people ) analyst Simon Williams.

Today's move comes after a Kuwaiti parliamentary committee yesterday expressed concern about the currency's valuation and urged the government to allow the dinar to appreciate in order to reflect the value of the US dollar.

At the time of the May revaluation, the central bank announced it was pegging the value of the dinar against a basket of currencies, rather than just against the dollar.

Following today's move, analysts at Standard Chartered have estimated that this basket consists of 70 pct US dollar, 20 pct euro, 5 pct Japanese yen and 5 pct sterling.

This makes any future moves highly dependent on the outlook for the US dollar, particularly against the euro.

The euro today hit a new record high against the dollar of 1.3797 usd, with 1.40 usd the next key level as far as further Kuwaiti revaluation is concerned, Standard Chartered believe.

'If the euro moved above 1.40 usd, this would push the Kuwaiti authorities into revaluing again,' said Steve Brice, regional head of research for the Middle East at Standard Chartered.

Kuwait's move, however, is unlikely to be followed by other Gulf states such as the United Arab Emirates or Qatar.

'We doubt that Kuwait's decision will have major implications for the currency reform debate in the rest of the Gulf Cooperation Council,' not even if the US dollar were to fall sharply from its current levels, Brice said.

He pointed to the fact that the UAE has previously said it will not make any move on currency flexibility unless the whole of the rest of the region does so, including Saudi Arabia. Qatar meanwhile has indicated it will retain its currency peg for at least three years.

'Kuwait remains the country to focus on in 2007 before changes are seen elsewhere in the region in the coming years,' Brice said.

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