UAE rules out dihram revaluation

Speculation began after Oman said it cannot meet the deadline for Gulf monetary union.

    Markets were betting that the UAE dirham would be allowed to appreciate against the dollar [AP]
    Suweidi said in April that Gulf Arab rulers had agreed to keep their exchange rates pegged to the dollar and that the UAE would not change policy unilaterally.

    The UAE, Saudi Arabia and four other oil producers of the Gulf Cooperation Council pegged their currencies to the dollar to prepare for monetary union in 2010.

    Speculation

    With that deadline increasingly in doubt, markets have been piling pressure on the UAE dirham and Kuwaiti dinar, betting the central banks would allow them to appreciate against the dollar, which touched a two-year low against the euro on Tuesday.

    Speculation about Gulf currency revaluations gathered momentum after Oman, one of the six states, said last year it had decided not to meet the 2010 deadline for monetary union.

    Gulf Arab central bankers met in Saudi Arabia this month to hammer out a deal to put the currency union plan back on track, but failed to achieve a breakthrough.

    The governors appeared to be divided on currency policy with Oman's central bank chief saying that any agreement to maintain pegs to the dollar was purely informal.

    Kuwait, considered the most likely country to revalue in a Reuters poll, has said it may widen the band in which the dinar trades against the US dollar or move to a basket of currencies to contain inflation.

    Kuwait's official news agency appeared to be building a case for a revaluation when it blamed the dinar's peg to the dollar for rising inflation earlier this month.

    Saudi Arabia, Bahrain, Oman, and Qatar have ruled out any changes to their dollar pegs.

    SOURCE: Agencies


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