(CNN) -- The second cut in U.S. interest rates in as many weeks is putting further pressure on the members of the Gulf Cooperation Council to reconsider their currencies' peg with the dollar; and none more so than Qatar.
Qatari Prime Minister Sheikh Hamad tells MME Qatar has not made any decisions regarding dropping the dollar-peg.
The small emirate has the highest inflation rate in the region, and it threatens to spiral further northward as its government brings Qatari interest rates into line with the U.S.
The Qatar Central Bank lopped half a percentage off its deposit rate after the Federal Reserve sought to stave off recession in the U.S. with an emergency cut of 75 percentage points on January 22.
Eight days later, the Fed moved again, this time with a cut of half a percentage point to take U.S. interest rates to three percent.
After the first cut, MME's John Defterios sat down for an exclusive television interview with Qatar's Prime Minister, Sheikh Hamad Bin Jassim Al Thani, who is also the emirate's Foreign Minister, and controls Qatar's sovereign wealth fund through the Qatar Investment Authority (QIA).
John Defterios started by asking Sheikh Hamad whether the sharp decline in U.S. interest rates was putting too much pressure on Qatar's dollar-peg.
(HA): Oil and gas are saleable in dollars, but most of our imports are not in dollars but in Euros or Asian currencies. All of these currencies went 40 percent to 50 percent above the level which we experienced two years ago. For us, there is a pressure. We know that a decision needs to be made by the Fed because of the situation on the stock market in the United States; it might be a wise decision. But for countries like the GCC and Qatar, especially Qatar, it puts us under pressure on how to deal with inflation and our currency, which is undervalued already by at least 35 percent.
(JD): What is your instinct telling you, to go to a basket of currencies to buffer this fall of the dollar?
(HA): We are studying all options at the moment, but what I can say is that at the GCC meetings in December the agreement was to hold onto the dollar and to see. Every country has to see its way out of this, but only after a consultation with the GCC. For us, our wish is that it's a policy to be taken by the whole GCC, to either basket or revalue our currency. I cannot see a decision. Even in Qatar, we have no decision up to now.
(JD): At the December meeting there was a commitment to move forward with the single currency, realistically by 2010, or is that just a target?
(HA): It's just a target. I don't think we will reach that target.
(JD): What is a realistic timeline?
(HA): Well, first we need all of us to agree. Most of the GCC countries agree about the currencies but we would like to do it together, and some would like to wait. We cannot put a target on when it will be done.
(JD): President Bush, during his swing through the Gulf States, was asking the producers to put more oil on the market because of the U.S. recession that may be pending. Is it time for OPEC to put more crude oil onto the market?
(HA): Is there is excess oil to be put on the market? I am not sure there is more oil. I think all countries at the moment are pumping their capacity, if we are talking in real terms. If we are just telling the market there is some excess if something happens, then that is another situation. In my opinion everyone is at full speed, enjoying high prices, but there is no excess capacity immediately. Maybe there is 200,000 to 300,000 extra with one of the producers, but no more than that.
(JD): We have seen oil stabilize around $80 per barrel right now. That seems to be the new floor. Can we get to $100 per barrel and use that as a new floor within the next 12 months?
(HA): Well, anything is possible, but with the slowdown in the United States, and I don't know what effect in Asia, $70 or $80 is more likely than $100 this year. Unless the situation changes in the economy, which from what we hear cannot be changed so quickly.
(JD): We have seen a huge debate over the last four weeks about sovereign wealth funds and President Bush has actually gone to put tighter controls and a greater review of these funds. Do you think it's correct to provide greater scrutiny to the funds going into the United States and perhaps into Europe?
(HA): I'm surprised about these talks. We know these talks were more serious six months ago. But after the crisis I think most of the sovereign wealth funds, which have helped in the United States and elsewhere in Europe, this has been welcomed by the government. They are talking about this fund coming from a different space, from another space, and taking over the market. First of all, we are not politically ambitious to play a role in these companies. We do not want to take over companies. Maybe some, but not all.
(JD): I have talked to both the OECD and the International Monetary Fund and there is discussion about establishing a set of rules to adhere to for these funds. Would you go to a set of rules that were international in terms of the outlook as opposed to country by country?
(HA): If it is an international rule done by an international body and consulting all the countries, yes. But if there is one country that wants to set its own rules, we will respect their rules as a country, but we have other options to invest somewhere else.
(JD): You have a very good dialogue with the White House. Were you surprised by President Bush's actions?
(HA): Well, I don't know exactly what he means by this, but let us wait and see what will come. E-mail to a friend