UAE TO END DOLLAR PEG

Dubai:
UAE may be the next Middle Eastern country to stop pegging its exchange rate to the US dollar, according to trading in currency forwards. The second-largest Arab economy may follow Kuwait
and Syria, which ended their peg to dollar to curb inflation. Middle East currencies have been dragged lower by declines in the dollar, pushing up the cost of imports from Europe and Asia. The market has the expectation that the UAE dirham is the most likely of the Gulf countries to follow. The dirham would climb to 3.66025 to the dollar in a year, 0.35 per cent above today’s exchange rate, trading in forwards showed. The average premium in the
so- called implied rate in the past year was 0.04 per cent. In comparison, the premium on one-year Qatari riyal forwards is 0.06 per cent. Central Bank of Syria Governor Adib Mayaleh said
that the country needed to broaden its peg to stabilise the Syrian pound and bring down inflation. Kuwait switched to a currency basket on May 20 after gains in consumer prices accelerated above policy makers target rate. UAE Vice-President and Prime Minister and Ruler of Dubai His Highness Sheikh Mohammed Bin Rashid Al Maktoum said that the
country would keep its link to the dollar, even after inflation quickened to 10.1 per cent in 2006, from 7.8 per cent the year before. The UAE dirham was unchanged at 3.6732 to the dollar until recently, according to data compiled by Bloomberg. The Syrian pound was at 52.21, the Qatari riyal at 3.6396, and the Saudi riyal at 3.7504. Forwards are agreements in which assets are traded at current prices for delivery at a later specified time and date. Trading in the contracts allows investors to bet on the value of a currency that isn't fully convertible or hedge investments denominated in it.