Diplomatic rift imposes economic risks for Qatar

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Sun, 11 Jun 2017 - 12:01 GMT

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Sun, 11 Jun 2017 - 12:01 GMT

Qatar Currency- Reuters

Qatar Currency- Reuters

CAIRO – 11 June 207: Following June 5 decision by Saudi Arabia, the United Arab Emirates (UAE), Egypt and Bahrain to severe diplomatic ties with Qatar, the small-sized Gulf Arab state started facing economic challenges on the rift.

Economic analysts weighed in the consequences of the move on Qatari currency, stock and bonds market and interest rates, as the rift unexpectedly came, pushing Qatar’s main benchmark to slide 7.1 percent to record the worst weekly performance since December 2014.

Data compiled by Bloomberg showed that major sales of Qatari stocks came from Gulf-based institutional investors last week, recording $137 million.

“Nobody expected how tactical, decisive, straight forward, sharp and well planned,” managing editor of Abu Dhabi’s Mena Corp. Financial Services Nabil Al Rantisi told Bloomberg late Saturday.

Interest rates factor was also influenced by the decision, which included banning Qatari flights to bypass the airspace of Saudi Arabia, UAE and Egypt, as it stood at seven-year high 2.164 percent.

This hike, compared to 1.734 percent in Saudi Arabia and 1.489 percent in the UAE, reflects the market concern of banks of both countries, which are expected to tighten liquidity, Dubai-based credit analyst at Commerzbank AG, Apostolos Bantis also told Bloomberg.

“Qatari banks will take some days or even weeks to replace the lost liquidity from the GCC, and interbank funding transactions among Qatari banks will also dry up over the near-term as they try to preserve liquidity,” Bantis said in the report.

On the currency level, the Qatari riyal is predicted to be devaluated 20 percent in case officials did not control the riyal’s downfall, now standing at QAR 3.64 per $1, global head of strategy at London’s ING, Chris Turner said in the same report, citing the government’s ability to defend the currency with plenty resources.

The Qatari government is now obliged to meet the aforementioned economic challenges, to overcome the negative impact on its long-time strong economy.

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