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Monday, May 28, 2007

Rising cost of living in Qatar

Year on year inflation reached 15% in the first three months of this year according to a story in the Gulf Times today.

Many residents will be surprised – sometimes inflation here feels a lot higher. Furthermore, in terms of rental prices Doha has now overtaken many international cities including Brussels, Dallas and Toronto. Rent now averages over Qr8000 ($2,200) for a three bedroom apartment.

Food prices will also be hurting people on lower incomes – some foods seemed to have doubled in the last few weeks. I was shocked to see imported beans in Family Food at QR30 (eight dollars) a kilo.

With all this inflation you’d expect interest rates to be high. I visited QNB’s central bank’s website and found the benchmark interest rates as below:

Qatar Central Bank Rates
Previous Current
O/N Deposit Facility 4.90% 5.15%
O/N Lending Facility 5.25% 5.50%
Repo Rate 5.85% 5.55%

So if you have money in a saving’s account in Qatar, you are currently losing in the region of 10% a year!

The low rate of interest may be related to the desire of Qatar to join a currency union, and the consequent pegging of the Qatar riyal to the plunging dollar. Coupled with frantic growth and the huge amount of money flowing into the country, inflation is inevitable.

I still remember Black Wednesday in the UK, when our country were forced out of the European Exchange Mechanism by currency converters. Our Government estimated it cost them ₤3.4 billion – other estimates put the cost at ₤24 billion.

On the other hand, by staying out of the currency union we retained control over interest rates. Sensible interest rates by the Bank of England has lead to a decade of low inflation and economic stability.

With Kuwait recently abandoning its currency peg, the possibility of Qatar doing the same has to have increased. In the meantime inflation is increasing and less affluent Qatar residents are starting to suffer.

The saddest part of all this is the departure of long term Doha residents. An example of this was a long letter to the paper last week. A family who had been in Doha for thirteen years, and who are very fond of the country, were finally having to leave because of the increase in rent. The writer warned that it was getting increasingly difficult for companies to afford to employ people with families, and the result could be a more transient population of single men in the future. This would be a sad fate for a country where families and children are valued so highly.

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