UAE dirham peg to the dollar is not going anywhere, central bank

After unusual movements by the dirham in the forwards market, a senior United Arab Emirates central bank official said they will keep the dirham pegged to the U.S. dollar.

Saif Al Shamsi, assistant governor for monetary policy and financial stability at the central bank, said the currency has been pegged effectively since the 1980s when asked if the dollar’s strength was placing any pressure on the peg.

“We have been maintaining this peg and this exchange rate since 1980 until today, and in the future we will continue with this.”

The dirham, fixed at a rate of 3.6725 to $1, has fluctuated over the last two weeks and even dropped to its lowest level in more than a year in the 12-month forwards market, hinting at marginal devaluation of the currency against the peg in the coming period.

The change in the rate against the peg is seen as an indicator of how investors perceive the risk in the region. Investors seem to have reacted to oil’s slide to multi-year lows, in addition to a similar action in Saudi riyal forwards.

However, it is unlikely to pose any serious pressure to the pegs of the Saudi and UAE currencies, as they have amassed huge fiscal reserves to keep them spending for many years even with oil prices below $70 a barrel.

Also, the UAE economy is well diversified with over 60% of growth is non-oil.