DUBAI: Gulf states may need to rethink longstanding economic policies, including their fixed exchange rates, over the next five to 10 years as economic cycles in the region and the US diverge, a senior Qatar central bank official said in a research paper.
GCC have pegged their currencies to the US dollar '“ or in the case of Kuwait, a peg to a basket of currencies that is believed to be dominated by the dollar '“ to stabilise them.
But in recent years the GCC economies have moved more out of sync with the US, as the pegs press GCC policymakers to mirror the US central bank's decisions even if trends at home call for the contrary.
As long as they have currency pegs to the dollar, Gulf states could face destabilising capital outflows or inflows if they allow large interest rate gaps to open up with the US '“ but raising interest rates while Gulf economies are slowing could hurt growth further.
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