Exchange rates spark confusion

Exchange rates spark confusion
By Shakir Husain, Staff Reporter GULF NEWS Published: December 03, 2007, 01:41

Dubai: Arbitrary dirham rates offered by UAE money changers, in some cases as low as Dh3.05 per dollar or almost 17 per cent lower than the official rate, are sowing more confusion in the market where speculation on the dirham's revaluation is already rampant.

The UAE currency has been pegged at 3.6725 to the dollar since 1997 and until Sunday there was no change in the official peg.

UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi last month spoke about social and economic pressure to give up the dollar peg and to adopt a basket of currencies.

Saudi Arabia, the UAE and Bahrain have cut interest rates in the recent days to make it less attractive for investors to bet on the appreciation of their currencies. But that has not discouraged people from taking bets on the dirham's revaluation.

The forward markets on Sunday were expecting the UAE dirham to appreciate to 3.54 against the dollar in a year.

"It is happening because there is a huge demand for Gulf currencies," Monica Malik, senior economist at EFG-Hermes investment bank, told Gulf News.

"Increasingly we feel there is going to be some sort of currency reform in the next six months," she said, but added that the two-day summit of Gulf leaders starting in Doha on Monday may not come up with a firm action on the issue.

Analysts have been expecting Gulf government action on the dollar pegs as the cost of living across the region has been rising as imports have become costlier due to the slide in dollar's value.

Money changers, hotels and stores in shopping malls were accepting dollars at rates ranging from Dh3.05 to Dh3.50 per dollar yesterday.

They began revising the exchange rates on Friday and gradually raised the dirham rate against all other major currencies. Unofficial exchange rates of other currencies versus the dirham were similarly affected.

Tourists complained that they were getting fewer dirhams for their currencies.

"It is strange," said Ahmad Jan from Saudi Arabia as he walked between a bank branch and a money exchange at Deira City Centre and noted that the bank offered 60 fils more per dollar.

"What you see here is the official rate," a manager at the bank said.

Moroccan visitor Nasser Bin Omar said he accepted the lower dollar rate from the money dealer because he did not want to wait in the long queue at the bank.

"Offering a lower rate [than the official rate] to the US dollar against the UAE dirham is against the law. Money exchange houses should stick to the UAE Central Bank guidelines," said B.R. Shetty, vice-chairman of the NMC Group that operates UAE Exchange.

However, UAE Exchange Centre was offering Dh3.30 per dollar, about 11 per cent lower than the official rate on Sunday.

As revaluation speculation gripped the market, many expatriates were also delaying their remittances. A manager at a money exchange in Dubai's Al Ghusais area said there has been a decline in remittances.