Economists expect the move to result in a decrease in amount of money being invested by traders on a revaluation in the short-term.
Marios Maratheftis, regional head of research at Standard Chartered, says: “A clear endorsement by Sheikh Mohammed [bin Rashid al Makhtoum, the Vice-President and Prime Minister of the UAE] of a recommendation for no change in the current pegs could reduce the probability of any immediate revaluation.”
Now that the possibility of fighting inflation through a currency revaluation is receding, the UAE is instead turning to price controls to stem inflation. The government has signed a deal with the Lulu supermarket chain to freeze the prices on 32 food items for the rest of 2008.
Mushtaq Khan, GCC economist at Citigroup, says: “Although not the first and best policy option, if successful, price controls should take the edge off headline consumer price inflation, but may not bring down inflation that much.”