Gulf Arab nations should hold back from dropping their dollar pegs or revaluing their currencies because supply constraints rather than more expensive imports are driving inflation, HSBC Holdings Middle East CEO said.
"Most of the inflationary pressures are not because of the dollar peg, but because of supply constraints ... a lack of raw materials and workers," Chief Executive Officer Youssef Nasr told Reuters on Monday on the sidelines of an infrastructure conference in Dubai.
"It's not a compelling issue to drop the peg," he said.
Gulf Arab inflation could accelerate to fresh highs this year as the oil producers with pegs to the dollar cut interest rates in line with the United States, fuelling borrowing, Merrill Lynch said in a report received on Sunday.
Any revaluation might undermine investor confidence in the region, Nasr said. "If you look at the UAE and Qatar, the best analogy is Hong Kong," Nasr said. "They have developed a series of tools over the years to deal with the fact that you lose monetary independence when you have the peg. They have been very creative." (Reuters)
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