MSCI Keeps Qatar Onshore FX But Leaves Door Open for Change

(Bloomberg) -- Index provider MSCI Inc. will continue using the onshore foreign exchange rate of Qatar's riyal, for now. It may decide to switch to the offshore riyal if the gap between the two rates widens.

“MSCI will continue to closely monitor the accessibility of the Qatari FX market and may potentially decide to switch to the offshore FX rates in the future should the situation materially deteriorate,” the index provider said in an statement Dec. 5. The change to offshore rates could happen without consultation “should there be any material and persistent increase in the spread between the offshore and local FX rates.”

MSCI last month opened consultations with investors proposing to switch to a weaker offshore rate amid complaints that a boycott of Qatar by four Arab countries was making access to the official rate difficult. The decision benefits investors who track benchmarks compiled by MSCI as they would have to book losses if the rate was changed.

The central bank pledged to provide dollars to local and foreign investors at the official rate in response to MSCI's proposal. Even though the Gulf state pegs its currency to the U.S. dollar, a Saudi-led boycott that started in June spurred a gap between the onshore and offshore rates.

“There is a lot of manipulation” in the currency and credit default swap markets, Qatar's Finance Minister Ali Al Elmadi said in Doha on Tuesday. The government will intervene if it sees systemic risk in the economy, he said.

Reserves

Some Qatari banks only provided enough cash for domestic business, but not for trades deemed speculative, people familiar with the matter said in July. This policy weakened the riyal in offshore markets to a record low of 3.9275 to the dollar on Nov. 20. The currency then reversed the slide, gaining to around 3.70 this week.

“Given the amount of reserves at their disposal, the monetary authorities should have no problem in securing a liquid enough exchange rate,” said Simon Quijano-Evans, an emerging-market strategist at Legal & General Investment Management Ltd. in London. “MSCI needs to see that in action.”

After MSCI started consulting with investors, some market participants reported that the level of accessibility of the local foreign exchange market improved, MSCI said Tuesday.

To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Angela Cullen, Claudia Maedler

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