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Mon 9 Jun 2008 11:45 AM

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Inflation may delay Gulf currency - UAE

Differences of opinion emerging among Gulf states on how to tackle problem, cbank governor says.

Inflation threatens to delay the common currency project pursued by Gulf Arab states and is leading to disagreements about the launch, a leading Gulf central banker was quoted as saying in a newspaper report on Monday.

As Gulf central bankers gather in Doha later in the day to review the common currency plan, inflation takes center stage as it threatens to throw the currency union plan off track and stall economic growth.

UAE Central Bank Governor Sultan Nasser Al-Suweidi said differences in opinion were now emerging among the states - Saudi Arabia, the UAE, Qatar, Bahrain and Kuwait - who aim to set up a single currency as early as 2010.

"High inflation rates were never a concern before, and, although it is a temporary phenomenon, yet now it is indeed the factor behind the differences in opinion at this stage, and it can defer the issuance of the single currency beyond 2010," Al-Suweidi said, according to an article in UAE daily Gulf News.

Oil's rapid acceleration toward $150 a barrel threatens to spur Gulf Arab inflation to new records as currency pegs to the ailing US dollar prevent the oil producers from mopping up excess liquidity.

Al-Suweidi said GCC countries were "currently working on rearranging priorities according to the new circumstances", the newspaper said.

"The timeframe depends on the recent circumstances and developments where we find structural changes, in addition to the growing inflation," he was quoted as saying.

Prices will rise by an average of 9% in most Gulf states this year as rents and global commodity prices surge, a poll by newswire Reuters showed last month.

Inflation in Saudi Arabia, the world's biggest oil-exporter, hit an at least 30-year peak of 10.5 percent in April, while in Qatar, the world's largest exporter of liquefied natural gas, prices soared 14.75 percent in the first quarter.

Gulf policy makers have repeatedly said they would not follow the lead of Kuwait, which severed its link to the dollar more than a year ago partly to slow down imported inflation.

The states preparing for monetary union had agreed to keep their dollar pegs until the region created a single currency as early as 2010.