Opinion | Editorials
Making a bad situation worse
The road downhill with the dollar is now accelerated by the cut in interest rates.
- Gulf News
- Published: 00:38 March 20, 2008
By swiftly cutting its key interest rate in line with the US Federal Reserve, the UAE Central Bank has signalled its continuing devotion to the existing US dollar peg.
Such prompt action limits the scope for doubt about that commitment, but it cannot really remove the doubt about its economic logic.
Inflation in the UAE may be the natural price of rapid economic growth, but the tied relationship with the US economy, which is under huge strain, creates an equally natural sense of danger.
We've been on this road downhill with the dollar for years. Now the global credit crisis and incipient recession in the US make the situation acute.
Ordinary citizens in the UAE will undoubtedly note that interest rates on dirham savings are next to nothing, while inflation is ripping into the real value of cash. How to save, how to invest, how to protect earnings and wealth? That's not an easy call.
For the economy, real interest rates are venturing further into negative territory, exactly the opposite of the real need.
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It is no wonder if speculation of change on the dollar peg grows, nor if government action were taken. The circumstances now justify both.
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