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Mon 18 Feb 2008 12:57 PM

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UAE risks massive inflation surge

Annual money supply, an indicator of future inflation, jumps by more than one-third - central bank.

Annual money supply growth in the UAE, an indicator of future inflation, jumped 33.8% at the end of September, central bank data showed on Monday.

M3, the broadest measure of money circulating in the economy, was 623.4 billion dirhams ($169.8 billion) on September 30, compared with 466.08 billion dirhams a year earlier, data obtained by newswire Reuters showed.

Investors piled money into UAE dirhams late last year on expectations that the second-largest Arab economy would drop its dirham's peg to dollar, which hit record lows against the euro and a basket of major currencies in November. M3 was 600.3 billion dirhams at the end of June.

Quasi money, which measures cash in bank accounts other than demand deposits, jumped 36.7% to 349.76 billion dirhams at the end of September, driven by a 40.2% jump in dirham deposits to 236.96 billion dirhams.

Foreign currency deposits also rose 29.7% to 112.79 billion dirhams. Foreign assets and gold holdings held by the central bank jumped 85% from a year earlier to 179.71 billion dirhams, the data showed.

The UAE's dollar peg forces it to track US monetary policy at a time when the Federal Reserve is cutting interest rates to ward off recession, restricting its efforts to combat inflation, which hit a 19-year peak of 9.3% in 2006.

Inflation may have accelerated to 10.1% last year, according to a Reuters survey of economists. (Reuters)

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