Gulf central banks urged to sever links with tumbling U.S. dollar!

MIDDLE EAST - March 17,.2008 - Pressure is mounting on central banks in the Gulf to fight surging inflation when they meet on Wednesday by severing the link between their currencies and the tumbling U.S. dollar.

Officials in Qatar and the United Arab Emirates have denied rumors of an imminent decoupling, but investors are betting on reform and are rushing to buy local currencies as investment banks issue fresh calls for revaluation.

Analysts said that, despite the momentum, the Gulf states were unlikely to decouple suddenly from the dollar. They predicted more measured moves towards links to a basket of currencies.

“The feeling is [that] unilateral moves would only cause more confusion and difficulties for those countries who try to maintain the peg,” said Jason Goff, head of group treasury and market sales at Emirates Bank. Goff said that the Gulf states were more likely to move towards establishing a monetary union before they dropped the dollar. “I'm not holding my breath for a de-peg any time soon,” he said.

However, in a region where inflation has sent everything from the cost of food to construction supplies soaring, frustration is growing. In Qatar, inflation reached 12 per cent last year, the highest in the region, according to the International Monetary Fund. The UAE's inflation was 8 per cent. Some estimate that off-book inflation is as high as 40 per cent for some goods.