“Abandoning Qatar’s dollar peg does not seem likely. This follows success in reducing speculative pressures following a series of consistent statements by most authorities in the GCC countries that the peg to the dollar will remain.
Also, Qatari riyal’s one-year forward premium over the spot prices narrowed from 2.5% in March 2008 to 0.3% in August 2008. Maintaining the peg provides a solid platform for trade and some stability in a changing oil price environment,” IIF said.
IIF is not bullish about the dollar in the short term, and it believes the greenback may decline in 2009.
In its latest global economic outlook, Washington DC-based global body of financial institutions said the rise in inflation and weakening global growth could impact dollar negatively in 2009, though it strengthened recently after a weak start early this year.
IIF said global growth is set to weaken quite sharply. “We believe that recession will be avoided in 2008, but we remain cautious about the outlook for Q4 and beyond. What lies ahead is a period of sub par global growth (probably lasting into 2010) resulting from policymakers’ efforts to deal with still difficult credit markets and the stresses of bringing relatively high inflation down to more acceptable levels,” it said. The result, IIF said, is likely to be an “extended phase of corporate caution, during which hiring and capital spending plans will be subdued.”
IIF said: “The oil market remains tight. Downward demand adjustments have helped moderate the oil price in recent weeks, but any further downside is limited by the persistent weakness in non-Opec production. The Federal Reserve seems to be in the process of recognising that higher rates may be needed alongside still generous liquidity support measures.
We expect the tightening to begin at the end of 2008.” According to IIF, slowing global growth and the rise in inflation present a challenging environment for policymakers and will leave financial markets “quite volatile” through the next 18 months.
