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Wed 10 Jul 2019 01:35 PM

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UAE dirham should stay pegged to the dollar, says StanChart regional CEO

Sunil Kaushal says the two currencies should stay linked, despite economies sometimes becoming out of sync

UAE dirham should stay pegged to the dollar, says StanChart regional CEO
Sunil Kaushal, Standard Chartered’s regional CEO for Africa and the Middle East.

While the pegging of the UAE dirham to the US dollar often means that local authorities do not have full control over their economic strategy, especially when the two economies are not in sync, the peg should remain, according to Standard Chartered’s regional CEO for Africa and the Middle East.

Sunil Kaushal, who was previously the bank’s regional CEO for India and South Asia, started his position in Dubai as regional CEO for Africa and the Middle East in October 2015.

At that time, with oil prices hoovering below $30, the Gulf economies were in austerity mode and many governments were reining back their spending plans. At the same time, the United States economy was in a healthier state. Therefore, the Federal Reserve’s policy of raising interest rates was not something the UAE would have appreciated.

“The US was on a roll… interest rates were going up as a result, and interest rates had to go up in this part of the world too, but the underlying economies were not growing at the same pace, or not in the same situation... So, you had the monetary policy, which was determined by what happened in the US, not in sync with the economic reality [in the UAE]. That had an impact,” Kaushal told Arabian Business in an interview at the company’s regional headquarters in Dubai.

While the pegging of the UAE dirham to the US dollar has caused issues, Kaushal said he was still in favour of keeping the status quo and did not agree with some analysts who have called to depeg the two currencies.

“I think we believe in the peg. I don't think the peg is going to go away,” he said.

Earlier this month, US President Donald Trump hit out at the Federal Reserve for not lowering interest rates, claiming it was restricting economic growth in the US.

“Our country continues to do really well, really, really well. So we're very happy about it. I think we're going to be breaking records,” he told reporters on July 5. “If we had a Fed that would lower interest rates, we'd be like a rocket ship, but we're paying a lot of interest and it's unnecessary. But we don't have a Fed that knows what they're doing.”

Markets are betting on the fact the Fed will make its first rate cut since the financial crisis a decade ago, but, Fed chairman Jerome Powell, doesn’t seem too convinced.

Kaushal is hoping the Fed follows Trump’s demands and starts to lower interest rates.

“The view is now that interest rates are going to come down in the US and the cycle has turned. We have taken the brunt of it and now the cycle is turning and the view is, as early as July, you may see interest rates coming in, which will put a semblance of more balance between the economic reality and the interest rates,” he said.

Read the full interview with Sunil Kaushal in Arabian Business magazine on July 14.

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