UAE companies are pressuring the central bank to sever the dirham's peg to the dollar or at least revalue the currency, claiming the tumbling value of the US currency is beginning hit business.
"The dirham must be depegged immediately," said Khalaf Al-Habtoor, chairman of conglomerate Al-Habtoor Group, quoted UAE daily Emirates Business 24/7. "The implications of the dollar peg have really begun to affect business and markets."
UAE central bank governor Sultan Nasser Al-Suweidi said last month he was under growing pressure from "companies and communities" to drop the peg and track a currency basket including the euro to contain inflation.
Al-Suweidi backtracked after Gulf Arab rulers agreed at a summit last week to keep their dollar pegs. He said last week he saw no reason to change currency policy "for the foreseeable future".
The UAE will only revalue its dirham with Gulf Arab neighbours preparing for monetary union as early as 2010, foreign minister Sheikh Abdullah bin Zayed Al-Nahayan said on Saturday.
UAE business executives want a more flexible currency policy, Emirates Business reported.
"I think the market forces should be left to determine the value of the currency," Dubai Properties chief executive Mohammed Binbrek said.
The dollar pegs force the Gulf central banks to track US monetary policy at a time when the Federal Reserve is cutting interest rates and inflation in the region is surging. Inflation in the UAE hit a 19-year high of 9.3% last year.
"Given the high inflation, I would like to see the dirham linked to a basket of currencies around early 2008, with the non-dollar component comprising 5%," added Tawhid Abdullah, chairman of jeweller Damas.
The UAE is also worried the dollar's slide is hurting expatriates who make up more than 80% of the population. Al-Suweidi called for currency reform after South Asian construction workers rioted in Dubai over savings lost to dollar weakness.
The dirham hit a 17-year high last month after his remarks raised expectations of an imminent policy shift.
Gulf Arab policymakers will meet within days to discuss currency revaluations, Bahrain's foreign minister told Reuters on Saturday. (Reuters)
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