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GCC monetary union unlikely by 2010: UAE

DUBAI - With only about two years to go, Gulf Arab oil producers may not be able to meet the target for a monetary union by 2010, and are unlikely to sever their dollar pegs because the US currency is appreciating against other major currencies.

UAE Central Bank Governor Sultan bin Nasser Al Suwaidi stated this on Thursday, and stressed that the country’s economy would grow at 6.6 per cent this year and remain strong until 2009. Last year’s economic growth was 7.4 per cent.

In a keynote speech before a business conference, Al Suwaidi said the monetary union would be implemented in three stages with the last one involving the implementation of similar laws among the Gulf countries.

“If we achieve the first two stages to monetary union by 2010, then that will be enough,” said Al Suwaidi, who gave a keynote speech at the last of the two-day The 33rd Japan Cooperation Forum for the Middle East (JCCME).

He added that the first and second stages would reduce or even eliminate the cost of the exchange cross-rates as well as realise the free capital flows between the Gulf countries.

Al Suwaidi said, meanwhile, the rapid economic growth in the region could encourage the Sovereign Wealth Funds (SWFs) of GCC Arab governments to invest more of their assets in the domestic market.

He added this could start off a new regional development cycle. Among the Gulf Cooperation Council member-countries, only Kuwait has abandoned the dollar-peg while Oman said in 2006 that it would not join the monetary union.

The other GCC members are Saudi Arabia, Bahrain, the UAE and Qatar. “The current level of interest rates in the GCC actually creates an environment of ultra loose monetary policy with highly negative interest rates, which can only be conducive to massive credit growth,” said Philippe Dauba-Pantanacce, a Dubaibased senior economist for the Middle East & North Africa, Global Markets, at Standard Chartered Bank, in an earlier interview.

The UAE Central Bank has a two-per cent repurchase rate, or lending rates to commercial banks, since May 1. It has slashed this repo rate by 275 basis points since setting it at 4.75 per cent on November 29 following a revamped of its monetary policy tools.

The country has replaced a daily sale of fixed-rate certificates of deposit with the auction, the results of which have not been released.

jose@khaleejtimes.com