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A United Arab Emirates committee charged with studying foreign exchange policy has recommended that the oil producer should keep its dirham peg to the ailing US dollar at the same rate, state-run Emirates News Agency (WAM) said.

UAE Prime Minister Sheikh Mohammed bin Rashid Al-Maktoum said this month a committee was studying the country’s dollar peg and would report its recommendations to the government by the end of the year.

“It recommended keeping the linking of the dirham to the US dollar without any change to the official exchange rate of the dirham,” WAM said after the committee met Sheikh Mohammed on Wednesday. The agency gave no further details.

Speculation that the UAE — the world’s fifth-largest oil producer — and some of its Gulf Arab neighbours would sever their currencies’ link to the US currency has mounted as inflation surges across the world’s biggest oil-exporting region.

Inflation in the UAE, a federation of seven emirates, hit a 19-year peak of 9.3 percent in 2006 and probably accelerated to 10.9 percent last year, according to an estimate by the National Bank of Abu Dhabi.

The US currency hit record lows against the euro and a basket of major currencies last month.

Dollar pegs force Gulf governments to track US interest-rate cuts as the Federal Reserve tries to ward off recession. In contrast, Gulf economies are booming on a five-fold rise in oil prices since 2002.

The committee was studying “the benefits of staying with the peg or not”, Sheikh Mohammed told reporters on April 1.

Any change in foreign exchange policy would be taken collectively by Gulf states, UAE Central Bank Governor Sultan Nasser al-Suweidi said this week after a meeting with Gulf Arab central bank governors in Doha.

Gulf Arab states agreed at that meeting on fresh impetus for efforts to create a single currency by 2010 and resist pressure to revalue currencies or drop their dollar pegs unilaterally

REUTERS