UAE cuts interest rates to deter currency speculators

22 November 2007

The UAE Central Bank cut interest rates by up to 20 basis points on 22 November, in a bid to stop massive inflows into the dirham by currency traders anticipating a revaluation of GCC currencies.

The rate cuts put six and nine month deposit rates at 4.4 per cent and 4.3 per cent respectively, making UAE interest rates lower than those of the US, which are currently at 4.5 per cent. The aim is to cut the profit margin of investors who are selling dollars to buy dirhams.
The move echoes that of Kuwait, which cut rates earlier this year to stem inflows into the dinar, which had been valued at more than $5bn. Shortly afterwards the country dropped its currency peg to the dollar and began tracking a basket of currencies.
Nasser Al Suweidi, governor of the Central Bank of the UAE, says he was under increasing pressure to change the country’s currency policy.
The dirham hit a five-year high of AED3.6675 to the dollar on 21 November, despite the currency exchange rate having been officially pegged at AED3.6725 since 1997.

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