No Revaluation On The Horizon

March 2007 | Economic Analysis

Despite widespread speculation in the market over the possibility of a revaluation of Saudi's dollar peg, fixed at SAR3.745/US$, we have long maintained that this is a highly unlikely outcome (see Economic Analysis - Little Prospect Of A Revaluation). Massive current account surpluses, above 30% of GDP in 2006 according to our calculations, the continued flow of petrodollars into the economy, buoyant economic activity and the corollary inflationary pressures have called into question both the feasibility and sensibility of maintaining a peg. Firstly, there is the problem of 'imported inflation'. According to our estimates, the real effective exchange rate (REER)

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