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No plans to drop peg to dollar: UAE

DUBAI — The UAE has no plan to drop its peg to the U.S. dollar or revalue its currency, the country’s central bank governor said in remarks published yesterday.

Sultan Nasser Al Suweidi 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,” he said.

His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, said after meeting U.S. Treasury Secretary Henry Paulson 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 U.S. Fed — as inflation threatens to undermine their growing 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 Reuters 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 economy minister said last month.

Paulson toured Gulf Arab countries, including regional power and key U.S. ally Saudi Arabia, in recent days to defend the status of the dollar as the world’s reserve currency.

An adviser to the ruler of Qatar, 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.