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Tue 8 Jun 2010 02:30 PM

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UAE central bank sees no currency risk from Euro

Almost 100 percent of central bank's portfolio is in dollars, senior official says.

UAE central bank sees no currency risk from Euro
DOLLAR PEG: The dirham is pegged to the dollar. (Getty Images)

The UAE’s central bank faces no currency risk from fluctuations in the euro as almost 100 percent of its portfolio is in dollars, a central bank official said today.

“We maintain our reserves in the dollar,” Saif Al Shamsi, senior executive director for the central bank’s treasury department, said in response to e-mailed questions today. “Due to dollars being almost 100 percent of our portfolio, we are not subject to any currency risk in view of the current market volatility.”

The euro has fallen 17 percent this year as the debt crisis exposed cracks in the European monetary union and prompted deficit cuts across Europe that may hobble the economic rebound. The euro slid to as low as $1.1877 yesterday, the weakest since 2006, before recovering to $1.1917. The dirham is pegged to the dollar and last year the UAE pulled out of a planned monetary union with four other Gulf Arab states.

Al-Shamsi said the fact that UAE banks haven’t taken up all the facilities offered by the central bank is a signal of their confidence.

“Banks have liquidity with the central bank,” he said. “The central bank has offered the commercial banks many facilities but they are not using them, even at low rates.”

UAE bank deposits rose 0.5 percent in April from the previous month, the second increase in a row after contracting in February and January. Loans and advances were flat in April after rising 0.4 percent in March to a four-month high.

Al-Shamsi also said that any decision on provisioning for Dubai World debt will take place after a final deal is announced between the creditors and the company.

The state-owned investment company shook international markets last year after announcing it would seek to delay repaying $26 billion in debt. The company and creditors are thrashing out a deal to restructure $23.5 billion.

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