UAE denies plan to drop dollar peg

Inflation in the UAE will probably rise to 12 per cent this year. (RABIH MOGHRABI)

The UAE has no plan to drop its peg to the US dollar or revalue its currency, the country's central bank governor said in remarks published yesterday.

Sultan Nasser Al Suwaidi said the decision was based on safeguarding the national interests of the Gulf Arab oil exporter and is under no foreign pressure to keep its link to the dollar, Al Bayan newspaper reported.

"The UAE has no intention to drop the dirham's peg to the dollar or to revalue," Al Suwaidi said.

His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, said after meeting United States Treasury Secretary Henry Paulson earlier this week that the UAE would keep the peg so long as it served the country's interest.

Economists and analysts say Gulf Arab states are likely to review their currency pegs – which have forced them to cut interest rates in step with the US Fed – as inflation threatens to undermine their economies.

Inflation in the UAE, the second-largest Arab economy, will probably rise to 12 per cent this year, from 11 per cent last year, the median forecast of 11 banks and research companies in a survey showed this month.

Foreign factors, such as higher fuel prices, account for about 40 per cent of UAE inflation, while rising rents are the main domestic driver, the minister said last month.

Paulson toured Gulf Arab countries, including regional power and key US ally Saudi Arabia, in recent days to defend the status of the dollar as the world's reserve currency. An adviser to Qatari Government, another Gulf Arab state that pegs its currency to the ailing dollar, said the country needed to act over the dollar peg because of the rise in inflation. He was not more specific.

Inflation in Qatar rose for a third quarter in March to a near record 14.75 per cent, government data showed on Tuesday.