Bahrain dinar plunges, trade drying up

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MANAMA/DUBAI, Mar 19 (Kuwait Times): The Bahrain dinar fell to a multi-year low in the forwards market yesterday and the central bank was forced to move to an alternate location after a security crackdown on protesters closed the commercial district. One-year dollar/dinar currency forwards, which capture expectations for the dinar to depreciate over the next 12 months, were quoted as high as 200 points, the highest level since at least the year 2000, a senior bank trader said. The spot rate briefly weakened away from the peg to the US dollar dropping as far as 0.37716, because of security fears and uncertainty over whether the central bank was operating, traders said. The dinar then bounced back to 0.37695 after the central bank intervened to supply dollars. "In the dollar/Bahraini dinar forex market, activity has declined considerably, and most transactions are limited to spot and very short-dated swaps," said Mazen Barbir, forex dealer at Standard Chartered in Dubai. The offer on USD/BHD has widened to 0.3772, basically 20 pips over the central bank offer. Pressure for dollar buying will continue as investors will seek to exit liquid investments," he said. At their quoted high, one-year currency forwards implied that the Bahraini dinar would depreciate by roughly 0.9 per cent from its 0.376 peg to the dollar over the next year.