Al-Suwaidi rejects resignation rumours

14 December 2007
UAE central bank governor vows to retain his position until GCC launches single currency

UAE Central Bank governor Sultan bin Nasser al-Suwaidi has told MEED he does not intend to step down from his post when his four-year term ends on 18 December.

Responding to widespread media speculation that he is set to be replaced by Abu Dhabi Commercial Bank chairman Saeed Mubarak Rashid al-Hajeri, Al-Suwaidi said he did not intend to resign and hopes to have his four-year term in office renewed after it expires.

Speaking exclusively to MEED on 13 December, Al-Suwaidi said: “The rumours are totally rejected. They are baseless and without any merit.

“I would like to stay in the job to implement the strategic plan that I have worked on for the Central Bank. It is not unusual for central bank governors to have a four-year term, and the UAE is no different.

Al-Suwaidi said he will be atten-ding the three-day cabinet strategic planning meeting taking place before the start of the Eid holiday on 18 December, at which ministers will present their strategic development plans for the federation.

“I would like to be a part of implementing the new federal government strategy that will be implemented from 1 January 2008. We have a strategy for the Central bank that envisages changes in the areas of banking and insurance industry supervision to put the UAE at the forefront of the region.”

Al-Suwaidi, who has held the post for the past 16 years, hopes to remain in the job until a single GCC currency is introduced. “Of course I would like to remain as Central Bank governor until a common currency is implemented because that will be a very exciting time,” he said.

The introduction of a single currency for the GCC is a “strategic objective” for all six of the GCC economies, but no firm timescale can be given, he added.

Before a single currency can be implemented, several stages need to be completed.

The governor said because each of these stages in each of the six GCC markets needs to have a “clean finish” before monetary union can occur, it is difficult to set a definite deadline.

“We are not talking about a 2010 or 2011 deadline,” he said. “These are just dates that we are guided by. Whether it occurs in 2010 or beyond is not that important.

“No one can predict when a clean finish will occur on all the steps toward a single currency. But the most important thing is that a common currency is a strategic objective. There could be fluctuations along the way, as occurred with the EU, but the objective is clear.”

Al-Suwaidi also ruled out any imminent revaluation of the dirham’s currency peg to the US dollar. “There is nothing of the sort planned,” he said.

He added that currency speculators will not make profits from a dirham revaluation because it will not occur, and that UAE interest rates will continue to follow US policy in 2008 even if further rate cuts are made.

The UAE, along with Saudi Arabia, Bahrain and Qatar, cut interest rates by 25 basis points on 12 December.

This followed a move by the US Federal Reserve the previous day. Al-Suwaidi said the UAE would continue to track US interest rates lower, as economists are predicting will occur in 2008.

“It is very important to follow US interest rates because of the currency peg, otherwise arbitrage opportunities will appear and that will cause difficulties in the local currency markets,” he said.

Al-Suwaidi accepted there had already been currency speculation in the Gulf , but said it was inevitable that investors would try to profit from the rumours of a revaluation, and there was little that could be done about it.

Many economists, however, say that cutting interest rates in line with the US will only help to increase money supply in the region and add further inflationary pressures to the UAE economy. Most argue that money supply growth is one of the factors contributing to local inflation running at more than 10 per cent.

But Al-Suwaidi denied UAE inflation growth of nearly 25 per cent was affected by money supply, adding that higher interest rates would not temper inflationary pressures. “We do not think there is a correlation between money supply and inflation,” he said.

“Interest rates do not really affect inflation. The weakening of the US dollar is responsible for about 3 percentage points of total inflation, 1.5 percentage points is because of global inflation, and the rest is the result of rent and housing increasing.”

Al-Suwaidi said he expects M3 money supply growth, a measure of the growth in all the cash in the economy, will fall below 20 per cent in the coming months, from 30 per cent for the year to June 2007.

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