Standard Chartered raises UAE inflation forecast

Standard Chartered Bank raised its 2007 inflation forecast for the UAE on Monday to 9.3%, saying a law capping rent increases was not protecting new tenants.In November the bank had cut its UAE inflation forecast to 7.3%, from 9.6%, after Abu Dhabi, the largest of the seven emirates in the UAE, decided to limit residential and commercial rent rises at 7% a year.But new tenants in Abu Dhabi are not protected by the cap and face rent increases of 20 to 25%, Standard Chartered said in a research report.

The bank expects rents in Abu Dhabi to rise 12% this year while those in Dubai, which also imposes a 7% rental cap rule, should climb 4%."While the government appears to be doing a good job at holding the line on existing tenants, when tenants change it gives an opportunity for landlords to hike rents significantly," Standard Chartered said in a research note.It added that while imported inflation was "starting to accelerate" in the second-largest Arab economy due to US dollar weakness, this would not likely be the impetus for a UAE monetary policy shift away from a US dollar peg.UAE inflation was 13.8% in 2006, according to Standard Chartered, due in large part to rising rents in Dubai, where speculators and population growth are pushing up prices."Imported inflation does not appear to be the driving force of inflation, which is domestically generated," Standard Chartered regional economist Steve Brice said.Kuwait, the Middle East's fourth-largest oil exporter, has allowed the dinar currency to rise 2.73% since dropping a peg to the US dollar on May 19 in an effort to contain inflation.The UAE, Kuwait and four other Gulf states had pegged their currencies to the US dollar to prepare for monetary union in 2010. The UAE has said it would only shift this policy in concert with other Gulf states."Kuwait has created a blueprint that is relatively easy for a central bank to follow ... all it really takes is for the central bank to determine that this is the best course of action," Standard Chartered said.The bank raised its nominal gross domestic product growth forecast for the UAE to account for higher oil prices, Brice said. US crude oil prices touched a record $78.77 on August 1.The UAE's nominal GDP should grow 11.6% in this year to $182 billion, Standard Chartered said. Its previous forecast was for nominal growth of 5.9%. Source