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Dubai: The UAE or Qatar may drop their currencies' pegs to the dollar within six months as inflationary pressures outweigh the benefits of maintaining the links, Merrill Lynch & Co said.
"We believe there is a significant risk of a change in the policy regimes of either the UAE of Qatar in the coming six months," Merrill Lynch said in a research note yesterday. "Speculation pressure on other members of the GCC will remain and we expect Kuwait to maintain constant appreciation against the dollar."
Kuwait dropped the dinar's peg to the dollar on May 20, citing inflationary pressure from European imports, prompting speculation that its neighbours might follow.
The Saudi riyal has been trading near 20-year highs since Saudi Arabia, Oman and Bahrain chose not to follow the Federal Reserve's rate cut.
The central bank governors of Qatar, Oman, Bahrain and Saudi Arabia have all said a number of times since May that they have no plans to drop their currencies' pegs to the dollar.
UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi said repeatedly that any change will be coordinated with other Gulf states.
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