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Qatar’s Fixed Exchange Parity Appropriate for Economy; Dollar To Remain Primary Currency for Global Trade Settlement: QCB Governor

Qatar’s Fixed Exchange Parity Appropriate for Economy; Dollar To Remain Primary Currency for Global Trade Settlement: QCB Governor

Doha's present fixed exchange rate policy with the dollar works well and is appropriate for the economy despite sticky global inflation; according to the Qatar Central Bank (QCB) Governor HE Sheikh Bandar bin Mohamed bin Saoud al-Thani.

"We believe that this policy (of fixed exchange parity the Greenback) is appropriate for Qatar's economy and we don't see any need immediate need to change it," the central banker told the second day of the third Qatar Economic Forum 2023, powered by Bloomberg.

He said the International Monetary Fund has also said fixed exchange with the dollar is appropriate for the Gulf economies.

“Our main export is energy and our revenues are in dollars. So it is appropriate to keep our currency pegged to dollar,” he said.

Moreover, the QCB official said the dollar would remain a primary currency for international trade settlement due to its global acceptance and stability, backed by strong economy in the US.

On inflation, which according to Sheikh Bandar “is an enemy to the economy”; he said in the last few quarters, there has been improvement on the general price levels.

Stressing on the need for striking a balance between price stability, growth and financial stability; he said the central banks, across the world, have no other choice other than bringing inflation to its targeted level.

Highlighting that inflation is now in a downward trajectory, Sheikh Bandar said “it is sticky”, implying that it is going to decline in a slower rate and it will take longer time to reach the central banks’ targeted level.

Many central banks have resorted to inflation targeting to control the general rise in the price level. A central bank estimates a projected, or target inflation rate and then attempts to steer actual inflation towards that target, using interest rate changes.

Since the Qatari riyal is pegged to the dollar, the governor however said there have been instances when QCB had not increased the interest rates when the US Federal Reserve hiked its benchmark rate.

Finding that the spread between dollar deposits and QMR deposit rates have declined to 25 basis points at present from as high as 100 basis points; Sheikh Bandar said “we see it as useful and effective for our economy at this point of time.”

Qatar has seen a cumulative 4.75% or 475 basis points hike in interest rates since January 2022 after the central bank recently effected a 0.25% or 25 basis points increase in its key rates in view of the US Federal Reserve revising its reference rate in similar proportion.

The repo rate in Qatar has increased by a cumulative 4.75% or 475 bps from the beginning of 2022. Since January 2022, QCB repo rate has risen from 1% to 1.25% in March, then to 1.75% in May, 2.5% in June, 3.25% in July, 4% in September, 4.75% in November, 5.25% in December, 5.5% in March and the 5.75% in May 2023. In 2022, the average repo rate was 2.77% and it was 1% in 2021.