UAE deflation unlikely, says central bank chief

UPDATE 1: Governor Al Suwaidi also sees bank deposits growing faster than loans.
UAE deflation unlikely, says central bank chief
ECONOMY VIEW: UAE Central Bank governor Sultan Bin Nasser Al Suwaidi. (Getty Images)
By Soren Billing and Tom Arnold
Thu 04 Jun 2009 11:01 AM

The UAE economy is unlikely to see deflation in 2009 and it will continue to grow, the governor of the country's central bank said on Thursday.

Sultan Bin Nasser Al Suwaidi also said he saw no need for the government to intervene to ensure banks' loan to deposit ratios fall.

"I hope we will not need to take any measures. The market will correct itself by itself," he said on the sidelines of the launch of the UAE's first symposium for small and medium sized businesses.

His comments come three months after it was revealed that loan to deposit rates were as high as 125 percent at some banks. Latest figures for April show that the gap has narrowed.

Back in March, Suweidi termed the situation regarding loan to deposit ratios as "not appropriate" but he said on Thursday that he expected to see deposits grow faster than loans.

Regarding the economy, Al Suweidi added: "The dynamics in the UAE do not have the scope for deflation. I think we will use the extra capacity to expand the economy and go ahead."

On Wednesday, figures showed that annual inflation in the UAE slowed to 1.9 percent in April, and prices dropped between January and April, led by a housing price slump.

Inflation rates have decelerated quickly in the second-largest Arab economy since hitting a 20-year peak of 12.3 percent in 2008, Ministry of Economy data showed.

Asked about the fall in inflation, he added: "It is expected in the circumstances we are in a global financial crisis...so you expect inflation to decline."

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