The Advantages of Saudi Arabia’s Fixed Exchange Rate Regime for Inflation Control: An Econometric and Empirical Analysis

Since 1986, Saudi, has maintained a fixed exchange rate, pegging the Saudi Riyal (SAR) to dollar at SAR 3.75/USD. This stabilizing domestic prices, and promoting macroeconomic stability in an oil-dependent and economy exposed to volatile global commodity prices and international shocks. This paper provides a assessment of the fixed exchange rate’s advantages for inflation control. Leveraging a dataset spanning 1980–2025 and econometric tools— Ordinary Least Squares (OLS), Vector Error Correction Models (VECM), Autoregressive Distributed Lag (ARDL) techniques, and GARCH models—this study identifies the causal channels and measures the peg’s impact on inflation dynamics, with a review of literature, confirming that the fixed exchange rate has reduced inflation volatility, fostered price stability, and enhanced the credibility of monetary policy. However, importing US monetary conditions, create challenges amid the country’s Vision 2030 economic diversification agenda. The paper concludes with the careful balancing of exchange rate stability and evolving monetary policy needs.