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Dubai: A committee appointed by the government to examine the pros and cons of revaluing or de-linking the UAE dirham recommended that sticking to the current peg is more beneficial to the economy.
"The most appropriate solution would have been change of peg to a basket of currencies accompanied by a small, one-time revaluation to offset part of the sharp loss in the value of the dirham," said Bryan D'Aguiar, head of equity research at NCB Capital.
"But revaluation or a change in the peg by the UAE alone can only further aggravate currency speculation in the region," he said.
Although the recommendation might reduce the market positioning upon the dirham, analysts and economists said yesterday that this may not be the final word on currency reforms, considering the regional economic fundamentals.
Easing out
"The recommendation to stick to the dollar peg will reduce the speculative pressure on the dirham. The regional governments including the UAE now seem to be focusing more on the possibility of finding a solution within the framework of a unified currency.
"The economic fundamentals still are strongly in favour of a revaluation as we have previously said, and the next two to three months will be crucial," said Monica Malik, Director of Economics at EFG Hermes, a regional investment bank.
Economists said yesterday that huge potential one-time translation losses may be compelling the regional governments to stick to the peg.
The regional central banks and sovereign wealth funds together are estimated to hold up to $3.5 trillion in foreign assets denominated in the dollar.
With the UAE taking a firm stand on sticking to the dollar peg, analysts said the chances of the GCC collectively moving the peg to a common currency basket has increased.
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