Reuters/Dubai
Qatar's riyal fell sharply in the forward foreign exchange market on Wednesday as traders cited concern that Qatar might have trouble agreeing with banks on the pricing of a syndicated loan of up to $10bn.
The drop was part of widespread volatility in money markets across the Gulf in the last few weeks, caused by worries over the ability of state finances and economies to withstand a prolonged period of low energy prices.
One-year US dollar/Qatari riyal forwards rose as high as 312 points on Wednesday, their highest level since February 2009 during the global financial crisis, from 250 points on Tuesday.
Earlier this month, bankers said Qatar was in talks with international banks to borrow up to $10bn to help cover its expenses. The world's top natural gas exporter's income has been slashed by low oil and gas prices.
The five-year loan was expected to carry a margin below 100 basis points over the London interbank offered rate, one of the bankers said at the time. Qatar was aiming to complete the deal by the end of this year.
But on Wednesday, senior traders at two major Gulf banks said there was talk in the market that banks were having trouble agreeing with Qatar on the pricing of the loan.
Some bankers said they still expected the loan to go through. If not, the Qatari government might borrow more money domestically, tightening liquidity in the banking system and pushing up local money rates, which would put downward pressure on the riyal in the forwards market.
Comment could not immediately be obtained from the Qatari finance ministry or central bank on Wednesday.
Until early this year, Gulf banks had plenty of cash to lend their governments at low rates, but they now have less available funds as the flow of new oil money into their deposits decreased sharply.
Meanwhile, foreign banks have become more cautious about lending in the Gulf.
The Saudi riyal has dropped to its lowest level in the forwards market since 1999, while a liquidity squeeze in Kuwait pushed the dinar down in the forwards market this week.
