Gulf Arabs could drop dollar pegs in unison

DUBAI (Reuters) - Gulf Arab oil producers, torn between rising inflation and exchange rates fixed to a sliding dollar, could consider switching together to a currency basket to buy time for a troubled monetary union project.

A region-wide shift could catch investors unawares after months of market speculation that the United Arab Emirates or Qatar would break ranks with their neighbors and unshackle their currencies from the dollar as Kuwait did this year.

So far, most bets on currency appreciation have focused on signs that Gulf states are drifting apart after Oman chose not to join monetary union by 2010, Kuwait switched to a currency basket in May and a U.S. rate cut divided central banks in the world's top oil-exporting region.

But signals from the banks and growing pressure on Saudi Arabia to tackle inflation suggest markets waiting for one country to revalue may be barking up the wrong tree.

"I think they will stick to multilateralism," said Marios Maratheftis, regional head of research at Standard Chartered Bank.

"They have been hinting at a more flexible option to the dollar peg. The debate is on, at a multilateral level," he said. More...