UAE rules out changing dirham peg to dollar as forwards climb

Bloomberg

Dubai

The UAE, the third- biggest Opec oil producer, ruled out changing its currency’s peg to the US dollar after a government advisory body called for a review.

“The policy of the fixed peg of the dirham against the US dollar will remain in place” as economic indicators “strongly” support its continuation, state-run WAM reported, citing central bank governor Mubarak al-Mansouri. “This exchange rate policy has contributed to maintaining economic stability and bolstering investors’ confidence over the long period it has been in effect.”

The UAE, the second-biggest Arab economy and home to one of the world’s biggest sovereign wealth funds, has kept its currency at a rate of about 3.67 dirhams to the dollar. Ali al-Nuaimi, a member of the Federal National Council, said last week the central bank should conduct regular reviews to weigh the benefit of the dollar peg.

Twelve-month-dirham forwards jumped to 3.6750 a dollar at the end of last week from 3.6720 on November 21. That was the biggest weekly move in percentage terms since March 2011.

The dollar strengthened to a five-year high after Opec kept oil output unchanged on speculation lower crude prices will support the US economy. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 trading partners, rose 0.6% to the highest closing since March 2009.

Opec’s decision not to cut output to ease a global oil-supply glut sent oil pricing tumbling. Brent crude, the benchmark for more than half the world’s oil, lost 13% last week to $70.15 a barrel. The UAE holds about 6% of the world’s proven oil reserves.

The UAE and Saudi Arabia are among five of the six Gulf Co-operation Council countries that keep their currencies pegged to the dollar. Kuwait links its dinar to a basket.

The Federal National Council is a half-elected advisory body with limited parliamentary powers and its recommendations aren’t obligatory on the government.