Having weakened markedly in mid-2010, the riyal recovered over the next few months, stabilising at around YR214:US$1 since September. This recovery stems from a combination of CBY intervention (including buying riyals and cracking down on some money changers) and the fillip to confidence provided by the IMF's recent lending deal. We expect the authorities to continue to intervene over the next year in an effort to protect the currency, but the CBY's declining stock of foreign-exchange reserves will limit its capacity to prevent a further depreciation. As a result, we expect the currency to weaken once again from early 2011, declining from an average of YR220:US$1 in 2010 to YR228: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.