(MENAFN- The Arabian Post) Heightening speculation about an impending change in Saudi Arabia's currency policy has forced the kingdom's monetary authorities to issue a clarification to the effect that no changes were being contemplated in Saudi riyal's 30-year old dollar peg.
It is the second time in the past four months that Saudi Arabia is pledging allegiance to the dollar after bets for a devaluation seemed to have hit the highest level in almost two decades.
The Saudi Arabian Monetary Agency will "uphold its mandate" of maintaining the riyal at 3.7500 per dollar, backed up by a range of monetary-policy instruments including its foreign-exchange reserves, central bank Governor Fahad Al-Mubarak said in statement.
According to Bloomberg, twelve-month forward contracts for the riyal climbed to the highest since at least December 1996 on Friday, reflecting growing speculation the country could adjust its exchange rate.
Bloomberg also quoted Monica Malik, the chief economist at Abu Dhabi Commercial Bank, as pointing out that speculation about the riyal has continued to gather pace with oil prices moving down. The central bank governor's statement is to provide a consistent message in support of the peg, she said.
Saudi Arabia's budget has been under pressure after crude, the nation's main source of income, plunged to the lowest level in 12 years. The kingdom has announced plans to cut expenditure and subsidies to cope with the decline and may tap local and international debt markets this year to fund a deficit.
The currency peg is no longer sustainable, Peter Kinsella, an analyst at Commerzbank AG in London, said in a report last week. Pressure on the forwards will probably increase over the "coming weeks and months," he said.
The kingdom's net foreign assets dropped for 10 straight months through November, the longest streak since at least 2006, to $627 billion. Al-Mubarak said in September the nation will stick with its dollar peg as long as oil underpins the economy.
"Of late we have observed volatility in the dollar versus riyal forward market due to the mispricing linked to market operators' misperception about Saudi Arabia's overall economic backdrop," Al-Mubarak said in the statement on Monday.
Twelve-month forward contracts rose to 975 points on Friday, the highest since Bloomberg started collecting the data. They were at 875 points at 11:51 a.m. in Riyadh Monday.
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