Rulers review FX union date as Fed cut splits Gulf

By Souhail Karam

JEDDAH, Saudi Arabia (Reuters) - Gulf Arab rulers will decide in December whether to delay monetary union among six oil producers that are divided over how to respond if more U.S. interest rate cuts test currency pegs to the sliding dollar.

Gulf finance ministers and central bankers met in Saudi Arabia to review the 2010 deadline for creating a single currency in the world's top oil-exporting region -- a timetable all six say will be difficult, if not impossible, to meet.

With a widely-anticipated delay prompting investors to bet on the appreciation of dollar-pegged Gulf currencies, the six states agreed to keep foreign exchange policy unchanged, although each would steer its own course on interest rates.

"There is a margin for each state to follow monetary policies that correspond to its domestic conditions," Hamad Saud al-Sayyari, governor of the Saudi Arabian Monetary Agency, told reporters after the talks in the port city of Jeddah.

Oman's Central Bank Executive President Hamood Sangour al-Zadjali echoed the position, saying: "Each country has its own economic situation."

The International Monetary Fund said the Gulf needed monetary policy that was consistent with dollar pegs, after the six states broke ranks on their response to a U.S. interest rate cut last month, raising speculation about currency revaluations.

A dollar peg "requires following monetary policy that is coherent with that alternative", IMF Managing Director Rodrigo Rato told reporters after meeting Gulf Arab officials in Jeddah.