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Fri 30 Nov 2007 02:09 PM

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Arab Monetary Fund warns against repegging

AMF wants more freedom for Central Banks to control interest rates and stem inflation.

GCC central banks should not opt for a single revaluation against the US dollar, according to the Arab Monetary Fund.

Instead, they should allow their currencies to float within some form of managed range, or peg to a basket of world currencies.

Revaluations alone will not solve the problem, Jassem Al-Mannai, Chairman of the Arab Monetary Fund, said in an interview with Emarat al-Youm newspaper. "It will not be in the interest of Gulf countries and it will not help solve the problems that they are facing," he said.

Al-Mannai argues that governments in the Gulf must have the freedom to fight inflation, which will require raising interest rates out of step with moves by the US Federal Reserve.

Interest rates in the US are being cut in order to stimulate a slowing domestic economy. The reverse is necessary in the Gulf: interest rates need to rise in order to take heat out of booming economies, analysts suggest.

Speculation is rampant that a decision on exchange rate policy is imminent. Arabianbusiness.com on Wednesday carried news that the UAE Central Bank might make an announcement as early as Sunday, although this seems unlikely given that Ministers are meeting next week to discuss the issue.