Kuwait FX move positive but no rating impact

S&P analyst Luc Marchand also told Reuters that inflation was a constraint for Qatar’s sovereign rating of ’AA-’.

“S&P expects the decision by Kuwaiti authorities to repeg the dinar to a basket of currencies to have a positive impact on inflation. In terms of Kuwait’s credit standing, however, the decision is neutral,” Marchand said in a note.

He added that inflation had not been a major factor determining Kuwait’s credit rating of ’A+’.

Other Gulf countries have said they will not follow Kuwait’s example, but Marchand said inflation was an issue at least for UAE and Qatar. The dollar peg is fuelling inflation in the Gulf countries as the weakening dollar makes non-dollar imports expensive.

“For Qatar inflation is a concern for the rating. They had 12 percent inflation last year,” he told Reuters. “But if they revalue, the impact will be more short-term than for Kuwait because their inflation is due to domestic factors rather than external.”

He added, however, that the risk of Qatar overheating and geo-political risks were balanced by its net asset position and strategic alliances with the West.