Gulf rulers are unwilling to give up sovereignty over monetary and fiscal policy, making it difficult to form a single currency, while inflation will accelerate, increasing pressure on the states to revalue their currencies, Stein said in an interview in Dubai yesterday.
Bets on Gulf states revaluing their currencies receded after central bank governors agreed to hold an extra meeting in June to get the single currency back on track for its proposed 2010 deadline. Forward contracts to buy dirhams in 12 months time have fallen 1.4 per cent since March 18. “I question whether there will be a single currency,” said Stein.
“Any delays will increase speculation of a revaluation or a depegging.”
Gulf states have been under pressure to revalue their currencies against the dollar after the US currency lost 12 per cent of its value against the euro in the last year, stoking record inflation.
Consumer prices rose an annual 13.7 per cent in Qatar in the fourth quarter, the highest in the region. Inflation in the UAE accelerated to 10.9 per cent in 2007, according to an estimate by National Bank of Abu Dhabi, the country’s second- largest bank.
“Inflation rates will accelerate,” Stein said.
“Money supply and credit are booming, while inflation is also fuelled by foreign speculation in Gulf currencies.”
A revaluation of 10 per cent to 15 per cent, followed by a move to a basket of currencies would be enough to convince speculators to take profits, said Stein.
