Pressure could return for a review of the dirham's peg to the US dollar next year as the UAE economy recovers from the global recession.
The shortcomings of mirroring US monetary policy under the fixed exchange rate are likely to be exposed if accelerating inflation returns to haunt consumers, economists and analysts say.
A convergence on monetary policy with the US suits the UAE at the moment, with both countries looking to keep interest rates low to spur economic recovery.
But as the UAE's economy emerges from the financial crisis at its own pace, the need for the Central Bank to diverge from Federal Reserve policy by raising interest rates to keep a lid on rising inflation may become greater. The Fed will keep interest rates at low levels for the remainder of this year.
Dr Nasser Saidi, the chief economist at the Dubai International Financial Centre (DIFC), said: "Now is not the time to do so but as soon as we are in recovery the UAE and the Gulf should review the strong dollar peg policy, which has led to a perverse monetary policy."
Among GCC states, only Kuwait has dropped the dollar peg. It moved in 2007 to pegging the dinar against a basket of other currencies.
Last year, a rapid appreciation of the dollar stoked inflation throughout the Gulf as prices escalated for property and consumer goods. Future inflationary pressures could rise if high oil prices return, driving up costs of imported goods
The Saudi Arabian oil minister, Ali al Naimi, said on Friday that he did not rule out another crude shock. "Anything is possible," Mr al Naimi said. "We will do our best to avoid that because I don't believe high prices are good nor too low prices."
The dollar fell close to a one-year low against the euro on Wednesday and to a seven-month low versus the Japanese yen on Friday.
The fall came after signs that the economic recovery was gathering momentum, prompting investors to sell the US currency and buy assets offering higher yields. Investors had fled to dollar-denominated assets as a safe haven during the financial crisis.
The dollar's drift lower against other leading world currencies has also pushed up the price of oil because it is denominated in the US currency.
The dollar could be weakened further after last week's summit of the Group of 20 leading and emerging economies, where leaders discussed the need to rebalance the global economy.
Simon Williams, HSBC's chief economist in Dubai, said: "Through 2010 and longer, growth in the UAE will pick up earlier and more rapidly than in the US and with it will come upward pressure on prices.
"But the monetary policy for the pegged currency may mean we find ourselves with a weak currency and weak interest rates when what we need is tighter monetary policy."
The boom years of the Gulf were fuelled in part by policy makers in the region following the lead of the Federal Reserve in the US by lowering interest rates, Dr Saidi said.
Eric Swats, a partner at Rasmala Investments in Dubai, said the current dollar weakness would help the UAE economy stabilise in the short-term. "The weak currency is what the UAE needs," Mr Swats said. "We know that there's been a huge deflation in the property sector. I think a weaker currency will help to bring foreign direct investment back to the sector."
The UAE has maintained a fixed exchange rate with the US currency since 1997, although its currency has tracked the dollar since 1978.
An alternative to the dollar peg could be the currency basket system adopted by Kuwait, although that is believed to be heavily weighted in dollars.
Jane Kinninmont, an economist at the Economist Intelligence Unit in London, said: "If they want more interest rate flexibility a stronger move would be towards a currency basket like in Kuwait."
Analysts see little chance of the dirham being cut loose from the dollar peg any time soon, but some can see discussions on the subject. "I think it's highly unlikely," said Robert McKinnon, the managing director of equity research at Al Mal Capital. "I do anticipate a discussion among policy makers, but the perception among them is that the dollar peg adds stability in the region, although I think that's a misconception."
Tim Fox, the chief economist at Emirates NBD, also believes the peg to the dollar is here to stay in the medium term. "The fact that the UAE resisted when inflation was much higher in 2008 when there was pressure to revaluate makes me think it will not be the case," he said. "The message has been strongly supportive of the dollar as a peg."
Sultan al Suwaidi, the Governor of the Central Bank, said in May that the UAE had no intention of diversifying its foreign currency reserves away from the dollar. Most Gulf nations, with their currencies pegged to the greenback, have to recycle surplus oil revenues into dollar-denominated assets. As a result, the region is among the world's largest buyers of US government bonds and corporate shares.
Previous speculation about a review of the currency peg has had an impact on UAE markets. Last year saw the withdrawal of an estimated Dh180 billion (US$49bn) in "hot money" invested in local markets on the expectation of a dirham revaluation, after it became clear that the currency peg would be maintained.
* additional reporting by Tamsin Carlisle
@Email:tarnold@thenational.ae
PROFILE BOX
Company name: Overwrite.ai
Founder: Ayman Alashkar
Started: Established in 2020
Based: Dubai International Financial Centre, Dubai
Sector: PropTech
Initial investment: Self-funded by founder
Funding stage: Seed funding, in talks with angel investors
RESULTS
Bantamweight
Victor Nunes (BRA) beat Siyovush Gulmamadov (TJK)
(Split decision)
Featherweight
Hussein Salim (IRQ) beat Shakhriyor Juraev (UZB)
(Round 1 submission, armbar)
Catchweight 80kg
Rashed Dawood (UAE) beat Otabek Kadirov (UZB)
(Round-1 submission, rear naked choke)
Lightweight
Ho Taek-oh (KOR) beat Ronald Girones (CUB)
(Round 3 submission, triangle choke)
Lightweight
Arthur Zaynukov (RUS) beat Damien Lapilus (FRA)
(Unanimous points)
Bantamweight
Vinicius de Oliveira (BRA) beat Furkatbek Yokubov (RUS)
(Round 1 TKO)
Featherweight
Movlid Khaybulaev (RUS) v Zaka Fatullazade (AZE)
(Round 1 rear naked choke)
Flyweight
Shannon Ross (TUR) beat Donovon Freelow (USA)
(Unanimous decision)
Lightweight
Dan Collins (GBR) beat Mohammad Yahya (UAE)
(Round 2 submission D’arce choke)
Catchweight 73kg
Martun Mezhulmyan (ARM) beat Islam Mamedov (RUS)
(Round 3 submission, kneebar)
Bantamweight world title
Xavier Alaoui (MAR) beat Jaures Dea (CAM)
(Unanimous points 48-46, 49-45, 49-45)
Flyweight world title
Manon Fiorot (FRA) v Gabriela Campo (ARG)
(Round 1 RSC)
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
RESULTS
6.30pm: Emirates Holidays Maiden (TB) Dh 82,500 (Dirt) 1,900m
Winner: Lady Snazz, Richard Mullen (jockey), Satish Seemar (trainer).
7.05pm: Arabian Adventures Maiden (TB) Dh 82,500 (D) 1,200m
Winner: Zhou Storm, Connor Beasley, Ali Rashid Al Raihe.
7.40pm: Emirates Skywards Handicap (TB) Dh 82,500 (D) 1,200m
Winner: Rich And Famous, Royston Ffrench, Salem bin Ghadayer.
8.15pm: Emirates Airline Conditions (TB) Dh 120,000 (D) 1,400m
Winner: Rio Angie, Sam Hitchcock, Doug Watson.
8.50pm: Emirates Sky Cargo (TB) Dh 92,500 (D) 1,400m
Winner: Kinver Edge, Richard Mullen, Satish Seemar.
9.15pm: Emirates.com (TB) Dh 95,000 (D) 2,000m
Winner: Firnas, Xavier Ziani, Salem bin Ghadayer.
Wicked
Director: Jon M Chu
Stars: Cynthia Erivo, Ariana Grande, Jonathan Bailey
Full list of brands available for Instagram Checkout
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Nike @niketraining & @nikewomen
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Ouai Hair @theouai
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Warby Parker @warbyparker
Zara @zara
GOODBYE%20JULIA
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88 Video's most popular rentals
Avengers 3: Infinity War: an American superhero film released in 2018 and based on the Marvel Comics story.
Sholay: a 1975 Indian action-adventure film. It follows the adventures of two criminals hired by police to catch a vagabond. The film was panned on release but is now considered a classic.
Lucifer: is a 2019 Malayalam-language action film. It dives into the gritty world of Kerala’s politics and has become one of the highest-grossing Malayalam films of all time.
Coffee: black death or elixir of life?
It is among the greatest health debates of our time; splashed across newspapers with contradicting headlines - is coffee good for you or not?
Depending on what you read, it is either a cancer-causing, sleep-depriving, stomach ulcer-inducing black death or the secret to long life, cutting the chance of stroke, diabetes and cancer.
The latest research - a study of 8,412 people across the UK who each underwent an MRI heart scan - is intended to put to bed (caffeine allowing) conflicting reports of the pros and cons of consumption.
The study, funded by the British Heart Foundation, contradicted previous findings that it stiffens arteries, putting pressure on the heart and increasing the likelihood of a heart attack or stroke, leading to warnings to cut down.
Numerous studies have recognised the benefits of coffee in cutting oral and esophageal cancer, the risk of a stroke and cirrhosis of the liver.
The benefits are often linked to biologically active compounds including caffeine, flavonoids, lignans, and other polyphenols, which benefit the body. These and othetr coffee compounds regulate genes involved in DNA repair, have anti-inflammatory properties and are associated with lower risk of insulin resistance, which is linked to type-2 diabetes.
But as doctors warn, too much of anything is inadvisable. The British Heart Foundation found the heaviest coffee drinkers in the study were most likely to be men who smoked and drank alcohol regularly.
Excessive amounts of coffee also unsettle the stomach causing or contributing to stomach ulcers. It also stains the teeth over time, hampers absorption of minerals and vitamins like zinc and iron.
It also raises blood pressure, which is largely problematic for people with existing conditions.
So the heaviest drinkers of the black stuff - some in the study had up to 25 cups per day - may want to rein it in.
Rory Reynolds
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
The specs: 2018 Nissan 370Z Nismo
The specs: 2018 Nissan 370Z Nismo
Price, base / as tested: Dh182,178
Engine: 3.7-litre V6
Power: 350hp @ 7,400rpm
Torque: 374Nm @ 5,200rpm
Transmission: Seven-speed automatic
Fuel consumption, combined: 10.5L / 100km
Company%20Profile
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Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
WHAT%20ARE%20THE%20PRODUCTS%20WITHIN%20THE%20THREE%20MAJOR%20CATEGORIES%3F
%3Cp%3E%3Cstrong%3EAdvanced%20materials%3A%3C%2Fstrong%3E%20specifically%20engineered%20to%20exhibit%20novel%20or%20enhanced%20properties%2C%20that%20confer%20superior%20performance%20relative%20to%20conventional%20materials%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EAdvanced%20components%3A%3C%2Fstrong%3E%20includes%20semiconductor%20components%2C%20such%20as%20microprocessors%20and%20other%20computer%20chips%2C%20and%20computer%20vision%20components%20such%20as%20lenses%20and%20image%20sensors%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EAdvanced%20products%3A%3C%2Fstrong%3E%20includes%20personal%20electronics%2C%20smart%20home%20devices%20and%20space%20technologies%2C%20along%20with%20industry-enabling%20products%20such%20as%20robots%2C%203D%20printing%20equipment%20and%20exoskeletons%3C%2Fp%3E%0A%3Cp%3E%3Cem%3ESource%3A%20Strategy%26amp%3B%3C%2Fem%3E%3C%2Fp%3E%0A
COMPANY%20PROFILE%20
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