UAE committee rules out change to currency peg

10 April 2008
The UAE government committee studying the dirham’s peg to the dollar has recommended that no revaluation or depegging occurs.

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.”

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