DOHA, Dec 3 (Reuters) - Qatar’s riyal is stabilising in offshore trade, recovering from several weeks of increasing volatility, after the central bank pledged to ensure liquidity in the foreign exchange market, commercial bankers said on Sunday.
Some currency traders said they believed the central bank had sold U.S. dollars offshore in significant amounts during recent days, but this could not be confirmed.
Until late November, the riyal swung widely between its peg of 3.64 to the U.S. dollar, widely used onshore, and much weaker offshore rates. On Nov. 21, it traded as low as 3.8950 on the Reuters conversational dealing platform.
Commercial bankers blamed the volatility on poor market liquidity in the wake of a decision by Saudi Arabia and three other Arab states to cut diplomatic and trade ties with Doha in June.
After the diplomatic rift, Qatar’s central bank and big state-owned Qatari banks became reluctant to supply dollars to the market when they believed the supply might be used for speculation against the riyal. One foreign banker said there was “rationing” of dollars by the central bank.
On Nov. 22, equity index compiler MSCI cited poor currency market liquidity when it said it might shift to using offshore exchange rates to value Qatar’s equities market - a move that could potentially lead to cuts in the weighting of Qatari stocks in MSCI’s emerging market index.
In an effort to avoid this, the central bank responded by saying it was committed to providing all the currency requirements of investors, including local and foreign individuals and institutions, at onshore exchange rates.
Since then, the riyal has gradually become less volatile, commercial bankers said. Most recently, it has been trading on the Reuters conversational dealing platform between 3.6404 and and 3.6950, a much smaller range than previously.
Some commercial bankers doing business in Qatar said the central bank appeared to have increased its supplies of dollars to the market after making its pledge. Others said it was not clear that supplies had actually increased, but agreed the pledge was having an impact.
The bankers also said that if the central bank did not ultimately follow through on its pledge to improve liquidity, the offshore market could soon resume testing the riyal’s lows.
MSCI said it would take feedback from the investment community on the proposed currency shift until Dec. 1, and would announce its final decision by Dec. 5.
Qatar’s stock market dropped last week because of worries about the MSCI decision but rebounded modestly on Sunday, climbing 0.6 percent. (Additional reporting by Saeed Azhar; Writing by Andrew Torchia)