UAE tries to end revaluation talk

Abu Dhabi: The UAE moved yesterday to quash speculation about a currency revaluation, saying Gulf Arab rulers had agreed to keep exchange rates pegged to the dollar and that it 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.

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

"There was consensus among the governors and among the rulers to keep the peg and there is no undoing of that decision," Sultan Nasser Al Suwaidi, UAE Central Bank governor, told Reuters on the sidelines of a conference in Abu Dhabi.

"We have to go along with other Gulf Cooperation Council countries in all issues including monetary policy," he said. "Nothing will be done unilaterally."

The dirham, one of two candidates for a revaluation according to a Reuters poll last month, fell to 3.6728 from 3.6721 against the dollar after his remarks.

Momentum

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

Gulf 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 telling Reuters after the meeting that any agreement to maintain pegs to the dollar was purely informal.

Kuwait, considered the most likely country to revalue in the 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 on Monday.

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