UAE buys US Treasuries And The Oil-rich Gulf Nation is Committed to Keeping its Currency Pegged to the US dollar ..

Tuesday, November 29, 2011

Europe not seeking UAE help, says Central Bank governor

UAE buys US Treasuries: Suwaidi

European leaders and the European Central Bank have not asked the UAE for aid to help contain the euro zone debt crisis, the country's central bank governor said on Tuesday.

Euro zone finance ministers are expected to agree on Tuesday on reforms of their bailout fund, the 440 billion euro European Financial Stability Facility, to expand its effective size through leverage. The EFSF will be able to attract cash from private and public investors to its co-investment funds.

European officials have raised the possibility of China and other cash-rich countries around the world investing, as a way to fight the crisis. But asked whether the UAE had been approached on this issue, central bank governor Sultan Nasser Al Suweidi said: "No, not at all."

"The Europeans need to organise themselves and they will solve their problems. These problems are of a sovereign debt nature and... can be handled over time, they need time," he told a news conference.

Continues ...read more ..

The central bank said in October it had no exposure to euro zone debt in its reserves and that it only invests in countries and corporates rated AAA, as required by law.

US TREASURIES

Al Suwaidi also said the central bank was investing again in US Treasuries as interest rates were now reasonable. The 10-year Treasury yield hit a record low of 1.72 per cent in September and has since rebounded modestly to around 2.0 per cent.

"Now, we do (invest in US Treasuries) because the circumstances have changed. The interest rates are now reasonable," Al Suweidi said.

"It (volume) is fluctuating depending on what the yield is," he told reporters, but did not give details.

Gulf Arab oil exporters such as the UAE mainly invest in dollar assets since most peg their currencies to the US dollar with crude oil, priced in dollars, accounting for a majority of budget revenue.

The central bank said in July, when the risk of a US debt default was unsettling markets, that it did not hold any US Treasury bonds and that most of its foreign reserves, though denominated in dollars, were invested in non-US assets.

The central bank's foreign currency assets edged down to a three-month low of Dh199.1 billion ($54.2 billion) in June. But within that total, holdings of foreign securities rose to Dh86 billion in June, the highest level since at least 2007, the latest available data show.

Al Suweidi also said the UAE's bank lending growth rate of 4 per cent since the beginning of the year was "good" under current circumstances.

Asked whether he saw any signs of foreign banks scaling down their activities in the UAE, one of the world's top five oil exporters, given the headwinds they are facing in Europe, he said: "Even if they scale down their operations they are free to do so. They will scale down and then return."

Stands behind dollar peg

The UAE's Central Bank governor said on Tuesday that the oil-rich Gulf nation is committed to keeping its currency pegged to the US dollar and is reinvesting in US Treasury bills.

The exchange rate of the UAE's currency, the dirham, is linked to the greenback. But some analysts have questioned the value of the keeping the policy as the US economic struggles and the dollar remains weak.

Al Suwaidi countered that the dollar link has served the Emirates well, adding that "we are very much with the peg."

"There is absolutely no change ... The fixed peg has served our economy for many years," he said.

Saif Hadef Al Shamsi, assistant governor for monetary policy and financial stability affairs, added that the Central Bank's reserves were also invested in Japanese government securities.

Asked about the effect of sanctions ordered by the Arab League against Syria, Al Suwaidi said the Central Bank will comply if ordered by the UAE government but has not yet received guidance on what measures to implement.

"There are procedural issues. They have to communicate that with us," he said.

The Arab League on Sunday approved sweeping sanctions against the regime of Bashar Assad to seek an end to the violence against opposition groups. Syria's foreign minister called the Arab move "a declaration of economic war" and warned of retaliation.

link