UAE revaluation as early as Sunday

With speculation mounting that Gulf currencies will be revalued after next Monday’s meeting of GCC central banks, ArabianBusiness.com has learned that the UAE central bank could make an announcement as early as Sunday.

Sources close to the central bank suggest a 3-5% revaluation of the dirham to the dollar is on the cards - bringing much needed relief to expats who have seen their earnings suffer heavily as a result of the weakened dollar.

This would see the dollar worth around 3.5 dirhams, against the current 3.67 dirhams value.

“The plan is to make an announcement when the banks are closed - National Day is an option, and if not National Day then the Eid holidays later in December,” said the source.

The central bank on Tuesday revamped its monetary policy tools and said it would take its first euro deposits from local banks, after raising market expectations it could swap its dollar peg for a currency basket.

Central bank governor Sultan Nasser Al-Suweidi said this month he was under growing social and economic pressure to drop the dirham's peg to contain inflation.

The dirham could track a currency basket including the euro, although any move would only be made in concert with Gulf Arab neighbours preparing for monetary union as early as 2010.

However, sources have suggested to ArabianBusiness.com that there will be no tracking of any basket currencies for now - just a revaluation.

The dirham hit a five-year high last week on the governor's remarks and forward rates showed investors expecting a appreciation of as much as 3.1% in a year in a currency which has been fixed at 3.6725 per dollar since 1997.

Earlier this week, London-based magazine the Economist warned that the dollar's relentless decline against major currencies was "prompting jibes from America's critics, jangling investors' nerves and giving policymakers headaches".

It urged the Gulf states to "loosen their ties to the dollar" when their leaders meet on December 3 in Qatar.

"Nowhere are the dilemmas more acute than in the Gulf, where virtually all the oil-rich states peg their currencies to the greenback. The combination of soaring oil prices and the tumbling dollar is distorting their economies and fuelling inflation," the magazine said.