Pressure on Qatar’s currency peg grew as the diplomatic crisis with its Gulf neighbours entered its second week, with the riyal falling to new 19-year lows despite the government’s public commitment to defending the exchange rate.
Qatar’s central bank attempts to keep the riyal fixed in an extremely narrow range around QR3.64 per dollar, but a Saudi-led blockade of the kingdom has prompted speculation that the bank will be forced to weaken the currency.
Ali Shareef Al Emadi, Qatar’s finance minister, told CNBC at the start of the week that “I don’t think there is any reason that people need to be concerned about what’s happening or any speculation on the Qatari riyal”, but his reassurances have done little to ease the pressure.
The currency briefly traded as weak as QR3.67 per dollar on Tuesday morning, according to Bloomberg data, its weakest level since February 1998, and at publication time was around QR3.6666 per dollar.
Moreover, the current pressure on the riyal has been more sustained than previous speculative attacks. The riyal has now traded more weakly than 3.6450 for seven days in a row, its longest period of weakness since 1993, and there is little sign that it will come to an end soon.
Analysts at ING last week said the “unprecedented” pressure on the riyal was likely to last until the government shows signs of bringing the dispute to an end, and ratings agency Fitch yesterday warned that “it is becoming more likely that the crisis will be sustained”.
Some traders are also predicting further devaluation to come. One-year forward points – which are used to determine prices to exchange riyals for dollars via futures contracts – have fallen back slightly from Monday’s closing level, but at 524.55 are still more than two and a half times higher than before the crisis started.
Given current spot exchange rates, the forward points imply traders would have to pay QR3.719 per dollar to secure delivery in 12 months.