Monetary Policy - QAR Peg Will Remain In Place - FEB 2018

BMI View: The Qatari riyal ' s peg to the US dollar will remain in place over the coming decade. The Qatari economy will continue to rely heavily on hydrocarbons, leaving little incentive for the authorities to unpeg - while vast financial buffers will prevent a forced devaluation .

The Qatari riyal has come under pressure in recent months as a result of the GCC diplomatic crisis, which has led some Gulf-based investors to reduce their exposure to Qatar and fuelled perceptions of elevated political risk in the country. Indeed, the gap between the onshore and offshore rate widened substantially after the outbreak of the crisis in June, and again in mid-November, following rumours of a foiled Emirati plan to attack the riyal and news that the MSCI would consider changing its valuation of Qatari stocks to the offshore rate. We nevertheless do not consider these dynamics indicative of a significant threat to the Qatar Central Bank (QCB)'s ability to maintain the peg at its current level. Qatari authorities have sufficient reserves to protect its peg for several years - and little incentive to let it go, as the country's economy remains heavily reliant on hydrocarbons, with any diversification likely to be a slow process.

Authorities Can Afford To Maintain Peg

Crisis-Linked Pressures On Peg Will Prove Manageable
Qatar - Exchange Rate, QAR/USD, Onshore (LHS) & Offshore (RHS)
Note: Last updated November 30 2017; the GCC diplomatic crisis broke out in early June 2017. Source: Bloomberg, BMI

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