An internal committee of the Shura Council, whose members are appointed by King Abdullah, wrote a report urging the world’s top oil exporter to revalue the riyal, al-Riyadh newspaper reported, quoting council member Waleed Arab Hachem.
The newspaper said currency reform was among recommendations in the report to offset the impact of the surge in prices on development projects in the kingdom, where the economy is surging on a seven-fold rise in oil prices since 2002.
"I’m not against this peg but against it being a sacred peg that cannot be altered or touched," Hachem told the paper.
"Members of the Shura Council back the recommendation… Only a few members … considered the majority of recommendations to be in the interest of contractors," al-Riyadh said.
Annual inflation in Saudi Arabia accelerated to an at least 30-year peak above 10 percent earlier this year. Saudi Arabian policymakers have repeatedly said they have no plans to change currency policy.
The newspaper did not clarify whether it had obtained a copy of the report or was relying on Hachem to detail its contents.
Amr al-Mady, the Shura Council’s head of media and publications, declined to confirm if the report was issued or comment on the al-Riyadh report. Hachem was not immediately available for comment.
"This is an issue that will keep on surfacing as long as inflationary pressures persist while the dollar weakens," said John Sfakianakis, chief economist at SABB bank, HSBC’s Saudi affiliate.
"But whether this will impact the government position, I highly doubt it," he said. In February, the Saudi finance minister and central bank governor told the Shura Council during a meeting to discuss how to combat rising prices that Saudi Arabia would not change its foreign exchange policy for now.
The Shura Council is not the only Gulf body to bring up currency reform. The Abu Dhabi Department of Planning and Economy said in a report this month Gulf states should consider pegging their currencies to a basket.
FIGHTING INFLATION
Gulf dollar pegs have contributed to inflation by making imports from Europe more expensive as the dollar tumbles to record troughs against the euro. The greenback hit a new low against the European currency on Tuesday.
Other Gulf states have said they will keep their pegs intact until achieving a single currency by an unlikely 2010 deadline.
Kuwait severed its link to the dollar in May 2007 and started tracking its dinar against a basket of currencies but this has failed to rein in inflation.
Saudi Arabia, the region’s staunchest supporter of the peg, has kept its riyal linked to the dollar at 3.75 since 1986.
A source familiar with Saudi currency policy said in November that the kingdom could consider revaluing the riyal with other Gulf oil producers while retaining its dollar peg.
The comments drove the Saudi riyal to a 21-year high.
The Riyadh report on Tuesday quoted Hachem as saying the Saudi economy can cope with a revaluation, and such a change would have an immediate impact on inflation.
Policymakers continue to support the peg. Saudi central bank chief Hamad Saud al-Sayyari said this month that adjusting exchange rates would not solve the issue of high inflation.
