The United Arab Emirates warned markets against betting on a dirham revaluation as investors piled pressure on the region's dollar pegs, expecting Gulf rulers to change currency policy at a summit next week.
The UAE was able to withstand pressure from speculators who drove the dirham to a 17-year high on Friday, a media report quoted Central Bank Governor Sultan bin Nasser Al Suweidi as saying, echoing a warning from Bahrain's central bank.
Suweidi ratcheted up expectations Gulf oil producers would sever links to the tumbling dollar, when he called last month for the region to track a currency basket to check inflation.
The speaker of Bahrain's parliament joined a chorus of calls for currency reform, proposing the government track the dinar against a currency basket as fellow Gulf oil producer Kuwait has been doing since May, Al Ayam newspaper reported.
In remarks carried by a Dubai-based newspaper, Suweidi moved to quell investor expectations that a change was imminent. "Their speculation will not yield the gains they expect," Suweidi said in remarks initially aired on state-owned Dubai TV, according to the newspaper.
Bahrain's central bank threatened to take action against anyone betting on dinar appreciation and accused foreign banks of spreading revaluation rumours, Middle East Economic Digest reported after an interview with Governor Rasheed Al Maraj.
Kuwait's central bank also warned investors against speculating on a revaluation in March. In May it dropped the peg to the dollar saying the U.S. currency's slide was fuelling inflation by making some imports more expensive.
Suweidi said the UAE central bank was not "currently" considering dropping the peg and any decision would be made by the government with other Gulf oil producers preparing for monetary union as early as 2010, the newspaper reported.
Gulf rulers meet in Qatar on Monday and Tuesday. A new certificate of deposits auction allows the central bank to fend off speculators, the newspaper quoted Suweidi as saying.
The central bank, which has no benchmark interest rate, uses the yield on the certificates to guide interbank lending. On Wednesday it stopped selling certificates at fixed rates and started auctioning them, allowing the yield to fall as demand for dirhams grew in anticipation of a revaluation.
The central bank also set its first repurchase rate this week, fixing its rate for lending to banks at 4.75 per cent.
The UAE would track any U.S. Federal Reserve interest rate cuts but may not match them exactly, the newspaper said.
Dollar pegs force central banks to track U.S. monetary policy to avoid currency appreciation at a time when the Fed is cutting rates and Gulf inflation is at its highest this decade.
In his call for reform last month, Suweidi complained Fed rates, which have fallen 75 basis points to 4.5 per cent since Sept 18, did not suit the Gulf. The UAE was under growing social and economic pressure to drop the peg, he said.
Bahrain's speaker kept up the pressure, proposing the government unshackle the dinar from the dollar, Bahrain's Ayam reported on its Web site on yesterday.
"Our purchasing power is declining due to the weakness of the dollar," Khalifa Al Dahrani said in remarks carried by several newspapers.
While the UAE is pushing for a switch to a currency basket, Saudi Arabia has ruled that out. The Saudis could consider revaluing their riyal without dropping the peg, a source familiar with Saudi currency policy told Reuters last month. (Reuters)
The UAE was able to withstand pressure from speculators who drove the dirham to a 17-year high on Friday, a media report quoted Central Bank Governor Sultan bin Nasser Al Suweidi as saying, echoing a warning from Bahrain's central bank.
Suweidi ratcheted up expectations Gulf oil producers would sever links to the tumbling dollar, when he called last month for the region to track a currency basket to check inflation.
The speaker of Bahrain's parliament joined a chorus of calls for currency reform, proposing the government track the dinar against a currency basket as fellow Gulf oil producer Kuwait has been doing since May, Al Ayam newspaper reported.
In remarks carried by a Dubai-based newspaper, Suweidi moved to quell investor expectations that a change was imminent. "Their speculation will not yield the gains they expect," Suweidi said in remarks initially aired on state-owned Dubai TV, according to the newspaper.
Bahrain's central bank threatened to take action against anyone betting on dinar appreciation and accused foreign banks of spreading revaluation rumours, Middle East Economic Digest reported after an interview with Governor Rasheed Al Maraj.
Kuwait's central bank also warned investors against speculating on a revaluation in March. In May it dropped the peg to the dollar saying the U.S. currency's slide was fuelling inflation by making some imports more expensive.
Suweidi said the UAE central bank was not "currently" considering dropping the peg and any decision would be made by the government with other Gulf oil producers preparing for monetary union as early as 2010, the newspaper reported.
Gulf rulers meet in Qatar on Monday and Tuesday. A new certificate of deposits auction allows the central bank to fend off speculators, the newspaper quoted Suweidi as saying.
The central bank, which has no benchmark interest rate, uses the yield on the certificates to guide interbank lending. On Wednesday it stopped selling certificates at fixed rates and started auctioning them, allowing the yield to fall as demand for dirhams grew in anticipation of a revaluation.
The central bank also set its first repurchase rate this week, fixing its rate for lending to banks at 4.75 per cent.
The UAE would track any U.S. Federal Reserve interest rate cuts but may not match them exactly, the newspaper said.
Dollar pegs force central banks to track U.S. monetary policy to avoid currency appreciation at a time when the Fed is cutting rates and Gulf inflation is at its highest this decade.
In his call for reform last month, Suweidi complained Fed rates, which have fallen 75 basis points to 4.5 per cent since Sept 18, did not suit the Gulf. The UAE was under growing social and economic pressure to drop the peg, he said.
Bahrain's speaker kept up the pressure, proposing the government unshackle the dinar from the dollar, Bahrain's Ayam reported on its Web site on yesterday.
"Our purchasing power is declining due to the weakness of the dollar," Khalifa Al Dahrani said in remarks carried by several newspapers.
While the UAE is pushing for a switch to a currency basket, Saudi Arabia has ruled that out. The Saudis could consider revaluing their riyal without dropping the peg, a source familiar with Saudi currency policy told Reuters last month. (Reuters)
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