Dollar relapse to raise Gulf import costs

Tom Arnold Renewed weakness in the US dollar would push Gulf import costs higher, further aggravating inflationary pressures and exposing the limited capacity of governments to adjust monetary policy, economists warn. Keeping interest rates low in the US to help stimulate a faltering economic recovery could lead to increased volatility in the greenback's value, they say. "A weak dollar could be an additional frustration and irritation for policymakers," said Jarmo Kotilaine, the chief economist at Saudi Arabia's NCB Capital.

"The GCC is beginning to have this uncomfortable story of mounting pressure of food prices and, depending on the country, pressure on the housing market, as well as the absence of disinflationary incentives. "Right now they're not able to do much about these pressures and a weaker dollar would provide added complications." Although some currency forecasters expect the dollar to trade lower in coming months amid concerns about the fragility of the US economy, other economists say a stuttering global economic recovery could boost the currency's appeal as a safe haven. The dollar on Tuesday dropped to a new 15-year low against the Japanese yen, pushing up the cost of imports from Japan.