The GCC monetary union, will tailor its monetary policy to maintain price stability, rather than a specific inflation target, a senior GCC official said. The policy will allow GCC states to tolerate relatively high inflation rates, which are often an unavoidable part of rapid economic expansion. "This is not an inflation targeting policy. It is targeting price stability without harming the need for sometimes an excessive development path," said Salim al Gudhea, the head of the monetary union unit at the GCC, at the GCC Banking Conference in Manama today.
According to the 28-article monetary union agreement, which was ratified by the heads of the Gulf states in December, the GCC monetary union will seek "price stability within the framework of optimal employment of economic resources to maintain economic stability." The GCC is in the process of implementing the technical and legal framework necessary for eventually instituting a common Gulf currency. Originally, all of the countries excluding Oman which dropped out of the monetary union plan in 2006 planned to have common GCC banknotes in circulation by Jan 1 2010. However, yesterday GCC representatives said the date would have to be pushed back.
Over the past few years, high inflation rates have plagued the Gulf states, causing some concern among analysts that rapid inflation could derail the GCC monetary union project, which requires all of the GCC states to converge on a similar inflation rate before the common currency is introduced. Since the onset of the financial crisis however, inflation has eased among the Gulf countries as a result of a decline in the value of the dollar and weakening global demand.