So far, bets that Middle Eastern currencies will break their pegs have proved wide of the mark. But that does not mean Saudi Arabia and the other members of the Gulf Co-operation Council – Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates – are off the hook.

Policymakers – barring Kuwait, which revalued its currency last year – have struggled to defend their currencies’ pegs to the dollar. Rising inflation has stoked expectations of revaluation, encouraging speculative inflows. These, added to huge oil revenues for many states, have fed domestic liquidity. As a result bank lending to the private sector, where demand for credit is already high thanks to negative real interest rates, is up. Booming credit growth has fuelled domestic demand, and thus inflation. The vicious circle has been reinforced by rate cuts in the US, which have forced GCC central banks to reduce domestic rates.