Inflation in the United Arab Emirates is temporary and mostly caused by domestic factors rather than the dirham's peg to a weak dollar, the central bank governor said in a television interview.
Only about 3 percentage points of inflation are a result of currency policy, Sultan Nasser al-Suweidi said in remarks aired by Al Arabiya television on Thursday.
Inflation hit a 19-year high of 9.3 per cent in 2006 as rising rents and food costs forced the government to introduce legislation to cap prices.
"Inflation is temporary and is mostly a result of domestic factors," Suweidi said. He has said in the past that rents were the main driver of inflation.
Dollar pegs force Gulf Arab oil producers, whose economies have surged on a near five-fold jump in oil prices since 2002, to follow U.S. monetary policy but risk stoking inflation, already at decade highs.
The Fed has slashed interest rates by 100 basis points since September 18 to contain the fallout of a mortgage market crisis, one of the main factors driving the dollar to life-time lows against the euro and a basket of major currencies.
Suweidi said on December 5 he would leave the peg unchanged for the "foreseeable future" after Gulf rulers agreed the day before to keep any currency-reform talk secret to calm markets.
Suweidi said last month he was under growing social and economic pressure to drop the peg and instead track a currency basket, including the euro. (Reuters)