The UAE accepted a committee's recommendation to keep the Gulf Arab oil producer's dirham pegged to the ailing dollar at the current rate, state news agency Wam said on Wednesday.
Soaring inflation has placed pressure on the second-largest Arab economy to revalue its currency after the dollar fell to record lows against the euro last month and the UAE tracked six interest rate cuts by the US Federal Reserve since September.
But a committee charged with studying currency reform suggested no change when its members met Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum, also UAE vice president and prime minister, and other UAE political and business leaders on Wednesday.
"It recommended keeping the linking of the dirham to the US dollar without any change to the official exchange rate of the dirham," Wam reported, without naming the committee members.
"Sheikh Mohammed was briefed on the committee's discussions and he approved the recommendation to keep the dirham's peg to the dollar," read another statement carried on Sheikh Mohammed's personal website.
Investors scaled back bets on Wednesday of a dirham appreciation, with forward rates showing investors expecting the dirham could rise 2.2% in a year, compared with more than 3% last week.
"The one thing they had missing from the currency debate has been a comment from the leaders of GCC countries," said Marios Maratheftis, regional economist at Standard Chartered Bank.
"A clear comment that there will not be any sort of move in the currency makes any move in the near term difficult."
The UAE is among four states in the GCC - including Saudi Arabia, Qatar and Bahrain - that are maintaining dollar pegs until they negotiate a single currency as early as 2010.
That project was thrown into disarray when Oman said in 2006 it would not join and Kuwait broke ranks last May by decoupling its dinar from the dollar, fuelling speculation that some of its neighbours would follow Kuwait's lead.
The UAE dirham had surged to a five-year peak in November after the country's Central Bank Governor Sultan Nasser Al-Suweidi said he was under mounting social and economic pressure to sever its peg.
The UAE currency has fallen back since then and Al-Suweidi has repeatedly backtracked on those remarks.
"No one wants to move when everyone is looking over their shoulders," said Monica Malik, regional economist at EFG-Hermes, which maintains its expectation of a 60% chance the UAE will reform its currency policy this year.
"The recent statements are really trying to take speculation away from the subject," she said.
Al-Suweidi said the committee's findings reflected "the supreme national interest of the state in the short- and long-term and the safety of the national economy", according to Wam.
Al-Suweidi, UAE Minister of State for Finance Ubaid Al-Tayer and Dubai Holding Chairman Mohammed Al-Gergawi also heard the committee's recommendations on Wednesday, Wam said.
Any change in foreign exchange policy would be taken collectively by Gulf states, Al-Suweidi said after a meeting this week of Gulf central bankers agreed on fresh impetus for efforts to create a common currency by 2010.
Whether the UAE and its neighbours will resist pressures to reform unilaterally depends on how successful they are at speeding up monetary union, Malik said.
Central bankers plan to hold an exceptional meeting in June to speed through the project, GCC Secretary-General Abdul-Rahman Al-Attiyah said this week.
"If they make strong progress at this meeting, then that could keep them together," Malik said.
Trying to offset the impact of inflation on their populations, Gulf states have tightened bank lending curbs, raised wages, boosted subsidies on imported foods and introduced rent caps.
Inflation in the UAE hit a 19-year peak of 9.3% in 2006 and probably accelerated to 10.9% last year, according to an estimate by the National Bank of Abu Dhabi (NBAD). (Reuters)
Soaring inflation has placed pressure on the second-largest Arab economy to revalue its currency after the dollar fell to record lows against the euro last month and the UAE tracked six interest rate cuts by the US Federal Reserve since September.
But a committee charged with studying currency reform suggested no change when its members met Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum, also UAE vice president and prime minister, and other UAE political and business leaders on Wednesday.
"It recommended keeping the linking of the dirham to the US dollar without any change to the official exchange rate of the dirham," Wam reported, without naming the committee members.
"Sheikh Mohammed was briefed on the committee's discussions and he approved the recommendation to keep the dirham's peg to the dollar," read another statement carried on Sheikh Mohammed's personal website.
Investors scaled back bets on Wednesday of a dirham appreciation, with forward rates showing investors expecting the dirham could rise 2.2% in a year, compared with more than 3% last week.
"The one thing they had missing from the currency debate has been a comment from the leaders of GCC countries," said Marios Maratheftis, regional economist at Standard Chartered Bank.
"A clear comment that there will not be any sort of move in the currency makes any move in the near term difficult."
The UAE is among four states in the GCC - including Saudi Arabia, Qatar and Bahrain - that are maintaining dollar pegs until they negotiate a single currency as early as 2010.
That project was thrown into disarray when Oman said in 2006 it would not join and Kuwait broke ranks last May by decoupling its dinar from the dollar, fuelling speculation that some of its neighbours would follow Kuwait's lead.
The UAE dirham had surged to a five-year peak in November after the country's Central Bank Governor Sultan Nasser Al-Suweidi said he was under mounting social and economic pressure to sever its peg.
The UAE currency has fallen back since then and Al-Suweidi has repeatedly backtracked on those remarks.
"No one wants to move when everyone is looking over their shoulders," said Monica Malik, regional economist at EFG-Hermes, which maintains its expectation of a 60% chance the UAE will reform its currency policy this year.
"The recent statements are really trying to take speculation away from the subject," she said.
Al-Suweidi said the committee's findings reflected "the supreme national interest of the state in the short- and long-term and the safety of the national economy", according to Wam.
Al-Suweidi, UAE Minister of State for Finance Ubaid Al-Tayer and Dubai Holding Chairman Mohammed Al-Gergawi also heard the committee's recommendations on Wednesday, Wam said.
Any change in foreign exchange policy would be taken collectively by Gulf states, Al-Suweidi said after a meeting this week of Gulf central bankers agreed on fresh impetus for efforts to create a common currency by 2010.
Whether the UAE and its neighbours will resist pressures to reform unilaterally depends on how successful they are at speeding up monetary union, Malik said.
Central bankers plan to hold an exceptional meeting in June to speed through the project, GCC Secretary-General Abdul-Rahman Al-Attiyah said this week.
"If they make strong progress at this meeting, then that could keep them together," Malik said.
Trying to offset the impact of inflation on their populations, Gulf states have tightened bank lending curbs, raised wages, boosted subsidies on imported foods and introduced rent caps.
Inflation in the UAE hit a 19-year peak of 9.3% in 2006 and probably accelerated to 10.9% last year, according to an estimate by the National Bank of Abu Dhabi (NBAD). (Reuters)
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