Dr Josef Ackermann, Chairman of the Board of Directors of the Institute of International Finance (IIF) and Chairman of the Management Board of Deutsche Bank AG commented, "Our view is that price pressures are mainly related to a weaker US dollar and a credit boom, coupled with supply bottlenecks, particularly in the real estate and housing sectors."
Addressing guests at a dinner marking the IIF 11th annual meeting of Middle Eastern and North African Bank chief executives he stated, "It is also clear that monetary policy in some GCC countries has struggled to fully stem the rapid buildup in credit and to dampen inflationary pressures". He added, "Monetary policy in most GCC countries has to balance the objectives of maintaining the dollar peg, which has contributed to macroeconomic stability, with those of safeguarding monetary stability".
These comments contrast with previous statements by several GCC central bankers including the UAE central bank governor, Sultan Nasser Al Suweidi that inflation levels are primarily a function of imbalances in the real estate sector.
Inflation levels in a number of GCC economies have effectively overtaken official lending rates spurring a soaring demand for credit. UAE mortgage lending at historic highs, has almost doubled in the year to June to Dh45.7 according to Reuters. In maintaining the dollar peg GCC governments have few tools at their disposal to rein in inflation and have adopted ad-hoc measures such as rent caps and significant public sector wage rises.
However, Ackermann acknowledged the major role the GCC plays in the stability of the global financial system. "IIF research puts the total net foreign asset position of the six GCC states, both public and private, at $ 1.8 trillion at the close of 2007, and we expect this figure to rise to over $ 2 trillion by the end of this year".
Earlier in his speech Ackermann noted that the current economic boom in the GCC would provide the basis for further development in a number of sectors including energy, petrochemicals, real estate, trade, finance and tourism. "We estimate that the GCC states’ non-hydrocarbon sector will grow by around 14 per cent in nominal terms this year, mirroring the rise in overall GDP growth. At around $ 900 billion the area’s 2008 nominal GDP will be more than double that recorded as recently as 2003".
He also noted the GCC needed to address some structural issues.
"The education systems require further upgrading and re-orientation to the needs of the market if unemployment among nationals (particularly graduates) is to be reduced. Corporate governance standards are also not as robust as they need to be".
Recognising the role of the Dubai International Financial Centre (DIFC) he said; "let me compliment the DIFC on its notable efforts to promote good corporate governance in the region. My colleagues at the IIF are extremely pleased to be working with the DIFC in this important area".
