Gulf Arab nations should hold back from dropping their dollar pegs or revaluing their currencies because supply constraints rather than more expensive imports are driving inflation, the CEO of HSBC Holdings Middle East said on Monday.
“Most of the inflationary pressures are not because of the dollar peg, but because of supply constraints… a lack of raw materials and workers,” Youssef Nasr told newswire Reuters on the sidelines of an infrastructure conference in Dubai. “It’s not a compelling issue to drop the peg.”
Nasr said any revaluation might undermine investor confidence in the region. “If you look at the UAE and Qatar, the best analogy is Hong Kong,” he said.
“They have developed a series of tools over the years to deal with the fact that you lose monetary independence when you have the peg. They have been very creative.”
Gulf Arab inflation could accelerate to 12% this year as the oil producers with pegs to the dollar cut interest rates in line with the US, fuelling borrowing, Merrill Lynch & Company said in a report received on Sunday. (Reuters)
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