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Gulf Arab oil producers must follow a monetary policy that is consistent with their currency pegs to the US dollar, International Monetary Fund Managing Director Rodrigo Rato said on Saturday.
Saudi Arabia and four of its neighbours peg their currencies to the dollar, but parted ways last month on their traditional policy of tracking US interest rate moves to maintain the relative value of their currencies.
"I think the relationship with the dollar is one alternative. It has its consequences. That alternative requires following monetary policy that is coherent with that alternative," Rato told reporters in Saudi Arabia.
When the US Federal Reserve cut rates on September 18, Saudi Arabia, Oman and Bahrain declined to follow, choosing to ride out pressure on their currencies rather than stoke inflation at home. Qatar and the United Arab Emirates cut some key rates along with Kuwait, the only Gulf oil producer that does not peg its currency to the US dollar.

Copyright Reuters, 2007

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