Growth in UAE money supply, an indicator of future inflation, hit almost 40 per cent in the year to March, its sharpest rise in at least five years, Central Bank data showed yesterday.
M3, the broadest measure of money circulating in the second-largest Arab economy, rose 39.82 per cent to Dh754.57 billion on March 31, compared to Dh539.67bn a year earlier, the Central Bank said on its website.
That was the sharpest rate of money supply growth since at least 2003, according to Central Bank data.
UAE inflation jumped to 11.1 per cent in 2007, the highest for at least 20 years, steered by soaring rents as the economy, its currency pegged to the weak dollar, contends with high world commodity prices.
The UAE, the last of the six Gulf oil producers to release inflation data for 2007, said it planned to modify its consumer price index to reflect price trends more accurately and release data monthly beginning next year.
Inflation has been soaring across the Gulf, where most countries peg their currencies to the ailing dollar, driving up import costs and forcing them to track seven United States interest rate cuts since last September.
But rising rents in the country led the rise in 2007 inflation to 11.1 per cent from 9.3 per cent a year earlier, the Ministry of Economy said in a statement.
Costs of rent and related household items, which account for 36 per cent of the consumer price index, rose 17.5 per cent last year, the ministry said. The "other goods and services" category rose 16.8 per cent, it added, without giving a breakdown of how steeply food prices have increased.
Inflation in the UAE will probably accelerate to 11.8 per cent this year, a Reuters poll showed last month. The key poll had predicted a 2007 inflation rate of 11.1 per cent.
MONETARY UNION BY 2010 UNLIKELY
The Gulf countries' plan to set up a European Union-style monetary union by 2010 is not expected to succeed as the time is too short, said a senior director at Fitch Ratings.
"A fully fledged monetary union by 2010 is now impossible," Richard Fox told a conference in Dubai yesterday. "You simply can't withdraw currencies and replace them with a new one in that amount of time."
GCC central bankers have agreed to "the most important terms" of the Monetary Union Agreement and will present a final version to finance ministers in Jeddah, Saudi Arabia, in September, UAE Central Bank Governor Sultan bin Nasser Al Suwaidi said on June 12.
Progress at pushing forward the single currency has eased pressure on Gulf governments to revalue their currencies against the dollar or drop the links completely, which had intensified as inflation accelerated to records in the region.
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