Housing supply boost to ease inflation

Additional housing supply later this year in the UAE should ease soaring rents and near-record inflation, the central bank governor said on Wednesday.

Lower inflation could ease pressure on the world's fifth-largest oil producer to revalue its currency against the tumbling dollar or even to drop the peg to the US currency altogether.

Inflation hit a 19-year high of 9.3% in 2006 and probably accelerated to more than 10% last year.

"Rent pressures will subside in 2008," Governor Sultan Nasser Al-Suweidi told newswire Reuters on the sidelines of a meeting of Arab government finance officials in the Yemeni capital, Sanaa.

"Many units will come in the market and supply will increase... the reason for inflation will not be there when more units become available," Al-Suweidi said.

The UAE, like Qatar and Saudi Arabia, has been under pressure to drop its peg and perhaps follow Kuwait in linking to a basket of currencies to offset the effect of more costly imports from Europe and other countries on domestic inflation.

Al-Suweidi said in November he was under social and business pressure to drop the peg in favour of a basket. Against the euro, the dollar has lost 8.3% from its strongest point this year on January 23.

"There is no need for currency reform now," Al-Suweidi said in Sanaa. "This is the situation of currencies by nature of their name and structure; they go up and down."

The UAE minister of state for finance will face questions next week from the country's advisory council on the currency's peg to the declining dollar, state news agency Wam reported.

Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum, also vice president and prime minister of the UAE, said on Tuesday a committee was studying the country's peg to the dollar, although it would be retained for now.

Gulf Arab central bank governors meet in the Qatari capital, Doha, on Sunday to discuss ways of creating a single currency, ostensibly by a January 1, 2010 deadline. (Reuters)

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