Dubai: The UAE will not revalue its currency ahead of other GCC states, the Central Bank governor said yesterday.
The continued decline of the dollar has weakened Gulf currencies, which are pegged to the greenback.
Sultan Nasser Al Suwaidi said Gulf states will discuss whether to revalue their currencies at the April meeting of central bank governors. "We will not act unilaterally," Al Suwaidi said. "But if [the governors] come to the conclusion that we should go in this direction or that direction, we will go along."
Gulf nations pegged their currencies to the dollar in 2003 under a plan to unite under a single currency by 2010. However, with questions of a possible delay to the union, and with the dollar falling 10 per cent against the euro last year, speculation of a Gulf-wide currency revaluation has risen in recent weeks.
Last month, investors betting on revaluation drove the UAE dirham and the Kuwaiti dinar to record highs.
Giyas Gokkent, head of research at National Bank of Abu Dhabi, said it was unlikely Gulf states would revalue their currencies, especially just to lower inflation. "The main driver in inflation is not exchange rate weakness but rising rents and supply bottlenecks in housing," he said.
However, Randa Azar-Khoury, chief economist at National Bank of Kuwait, told Gulf News last week that Kuwait might readjust the dinar's floating band with the dollar by one or two per cent.
Agenda
Al Suwaidi said the monetary union remains at the top of the agenda at the April meeting.
In December, Oman pulled out of the currency union.
Asked whether Oman might rejoin, Al Suwaidi said the prospects were "very, very strong". "I think if we discuss a simpler form of monetary union they will be coming back."
That may include replacing the planned single GCC central bank with a "high-level committee," he said.
Gokkent, however, said he believes Oman's reluctance is related to sover-eignty concerns. "I suspect there won't be any success with regard to bringing Oman back," he said.
The UAE is also waiting for the right time to raise its euro reserves, Al Suwaidi said. The UAE holds three per cent of its reserves in euros, with the rest in dollars, and plans to raise its euro reserves to 10 per cent.
Inflation 'will ease to 4.5% this year'
Inflation in the UAE will fall to 4.5 per cent this year, the Central Bank governor said yesterday.
Dubai's rent cap and the development of new real estate will help satisfy the demand for housing which has led to inflation, Sultan Nasser Al Suwaidi said.
"In Dubai, rent is limited to a 7.5 per cent rise, and extra units will come onto the market that will bring inflation down," he said.
The International Monetary Fund forecasts UAE inflation at five per cent this year, down from 7.7 in 2006.
Steve Brice, regional head of research at Standard Chartered Bank in Dubai, said his forecasts suggest the inflation rate will be slightly higher 7.3 per cent because of strong economic growth and low interest rates.
Standard Chartered first believed inflation would be 9.6 per cent but revised it after Abu Dhabi implemented a rent cap.
By Ivan Gale
© Gulf News 2007
