Having weakened markedly in mid-2010, the riyal stabilised at around YR214:US$1 from September. This recovery stemmed from a combination of CBY intervention (which included buying riyals) and the fillip to confidence provided by the IMF's recent lending deal. However, undermined by the uncertain political situation, the riyal has begun to weaken once more, forcing the CBY to dip into its stock of foreign-exchange reserves. Given the prevailing political headwinds, the CBY will struggle to manage this depreciation, and we expect the riyal to decline from an average of YR220:US$1 in 2010 to YR230:US$1 in 2011. In 2012, with foreign reserve stocks expected to decline to just four months of import cover, the pace of riyal depreciation will probably accelerate, and we expect the currency to average YR251:US$1.