Global index provider MSCI has decided to use the local foreign exchange (FX) rates for the Qatari currency in its indices, after Qatar Central Bank (QCB) guaranteed an exchange rate equivalent to the official onshore rates.
MSCI said it has decided to “continue using the local FX rates and not switch to the offshore FX rates for the Qatari riyal in the MSCI Indexes until further notice.”
Since the launch of MSCI’s consultation on November 21, 2017 on the proposal to use the offshore FX rates for the Qatari riyal in the MSCI Indexes, the spread between the offshore and local FX rates for the local currency has “substantially” narrowed, and some market participants reported that the level of accessibility of the local FX market has improved.
Also, on November 28, 2017, the QSE publicly announced that the QCB confirmed willingness to guarantee to all investors in QSE trading their Qatari riyals at an exchange rate equivalent to the Qatari official onshore FX rates.
The views of market participants have evolved accordingly over the period of the consultation. While 90% of the feedback received prior to the QSE’s announcement on November 28 was in favour of the proposal to switch to the offshore FX rates, more than 50% of participants revised their initial feedback after the QSE announcement and suggested to continue monitoring the situation and postpone the decision.
“In order to reflect these recent developments and the feedback from market participants, MSCI will not implement the switch at this time,” it said.
The continuing existence of a spread between the offshore and local FX rates (about 2% as of December 5, 2017) is still seen as an issue by investors that use the offshore FX market to trade the Qatari riyal.
The index provider cautioned that it would 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”.
Consequently, MSCI may decide to switch to using offshore FX rates for the Qatari riyal in the MSCI Indexes, without further public consultation, should there be any material and persistent increase in the spread between the offshore and local FX rates, it cautioned.
“In the event of a potential decision to use offshore FX rates for the Qatari riyal in the MSCI Indexes, MSCI would provide sufficient lead time for implementation,” it said.
BMI, a Fitch company, had viewed that Qatar has the ability to inject dollar liquidity in order to narrow the gap between the onshore and offshore currency rates.
“The QCB has much more than the required foreign reserves to cover all investors’ requirements,” QSE said, highlighting the QCB’s commitment to provide foreign currencies at the official exchange rates for investors including local and foreign individuals and institutions.
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