DUBAI, (Reuters) – The United Arab Emirates prime minister said his country will keep its currency pegged to the U.S. dollar so long as this policy serves its interests, the UAE official news agency WAM reported.
“Sheikh Mohammed bin Rashid al-Maktoum affirmed to (U.S. Treasury Secretary Henry) Paulson that the linkage between the dirham and the dollar would continue so long as this was in the best interest of the UAE and the national economy,” WAM reported late on Monday.
Experts have been saying that Gulf Arab states were likely to review their currency pegs — which forced them to cut interest rates in lock-step with the U.S. Fed — as persistent inflation threatens to destabilise their booming economies.
The UAE economy minister said last month that foreign factors such as higher fuel prices account for about 40 percent of United Arab Emirates inflation, while rising rents are the main domestic driver.
Inflation in the UAE, the second-largest Arab economy, will probably rise to 12 percent this year, from 11 percent last year, the median forecast of 11 banks and research companies in a Reuters survey this month showed.
Paulson was in the UAE as part of a four-day tour that also took him to Saudi Arabia, Qatar and Bahrain to defend the dollar’s status as the world’s reserve currency.
Paulson has said that leaders of Gulf oil producing nations have told him that abandoning their currency pegs to the dollar will not solve their inflation problems.