UAE’s dirham attracts Middle East investors

by Richard Kilner

Story link: UAE’s dirham attracts Middle East investors

The UAE’s dirham has been cited as a reason for the large-scale shifting of bank deposits throughout the Middle East into the United Arab Emirates yesterday. The investors are hoping for an appreciation of the dirham, which is pegged to the dollar.

Last week the central bank governor indicated that he could remove the peg to the sharply falling dollar, beginning a head of steam which may be relieved by the first cut in rates of selling the dirham for a decade.

On Thursday the dirham reached 3.6681 per dollar, a five year high.

Jason Goff, head of group treasury and market sales at Emirates Bank International Ltd, said that there has been a large retail shift into dirhams last week, explaining that clientele from nations with dollar-pegged currencies have nothing to lose by going into the dirham.

Indian expats are moving their money from dollar holdings to assets in the dirham, such as stocks and real estate, according to K V Shamsudheen, director of Barjeel Geojit Securities which advises Indian clients how to invest their cash.

The UAE has pegged its currency to the dollar since 1997, selecting a selling rate of 3.6720 per dollar and a buying rate of 3.6730 per dollar.

Should it seek to make the dirham a less attractive proposition, the rate could be changed to 3.64 per dollar, commented Elyas Al Gaseer, Calyon’s treasurer for the Middle East.

Gaseer went on to explain that many private banks and hedge fund managers are presently selling major currencies and buying local currencies as they are aware the disadvantages of doing so are extremely limited.

RAK Bank’s treasury head, Malcolm D’Souza, suggested that the bank could broaden the spread by 40 ticks to 3.6690.