UAE, Qatar to see inflation ease

EASING PRESSURE: Skyrocketing inflation n the UAE and Qatar should ease as new housing supply hits the market, says UAE governor. (Getty Images)

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

Lower inflation could ease pressure on the UAE - the world's fifth-largest oil producer - and Qatar to revalue their currencies against the tumbling dollar or to drop their pegs to the U.S. dollar.

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

"By the end of this year, inflation will ease because of an increase in the supply of housing," Qatar Central Bank Governor Sheikh Abdullah bin Saud al-Thani told Reuters.

UAE inflation hit a 19-year high of 9.3% in 2006 and probably accelerated to more than 10% last year. In Qatar, the world's largest exporter of liquefied natural gas, it was 13.7% in the fourth quarter.

"Inflation has reached maturity in the last two quarters at 13.7%, and it's heading towards a decline by the end of this year," Qatar's Sheikh Abdullah said.

Gulf Arab oil producers have been under pressure to control inflation 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 prices.

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

Oman, one of five Gulf oil producers which peg their currencies to the dollar, said it expects the US unit to recover this year, helping lift its own rial.

"We expect the dollar to strengthen again, probably towards the end of this year," Omani deputy central bank governor Hamood Hashem told Reuters in Sanaa.

Against the euro, the dollar has lost 8.3 percent from its strongest point this year on January 23.

"It's not easy," Hashem said of revaluation. "If you revalue, it will not solve the problem of inflation as it's not only caused by the weakness of the currency but other factors."

Qatar's Sheikh Abdullah said the dollar has "now almost reached a bottom; it's not concern."

The UAE's Suweidi said in November he was under social and business pressure to drop the peg in favour of a basket.

"There is no need for currency reform now," 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, the state's Emirates News Agency (Wam) reported.

Ubaid al-Tayer will answer questions at a meeting on April 8 with the Federal National Council (FNC), WAM reported late on Tuesday. The FNC's 40 members advise the government of the UAE federation but have no legislative powers.

Dubai ruler and UAE Prime Minister Sheikh Mohammed bin Rashid al-Maktoum said on Tuesday a committee was studying the country's peg to the dollar, although it would be retained for now.

The committee was looking at the "benefits of staying with the peg or not", Sheikh Mohammed said.

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

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