The UAE will host Expo 2020!
  • Arabic
Supported by the UAE National Media Council
We are in the process of developing and improving our website, and we invite you to participate in our brief survey to measure the level of your satisfaction
Satisfaction Survey For UAE Interact Website
رغبة منا بالتعرف على مستوى رضاكم عن موقعنا وبهدف تطويره وتحسينه، فقد قمنا بتصميم استبيان سريع لقياس مدى الرضا عن موقع دولة الإمارات العربية المتحدة روعي في تصميم الاستبيان أن يكون قصيرا وسريعا كي لا نطيل عليكم، وعليه نرجو منكم التكرم باستكماله عن طريق الرابط التالي
استبيان رضا المتعاملين عن موقع دولة الإمارات العربية المتحدة

Money supply surges to Dh104bn to fuel inflation

posted on 01/08/2006: 684 views



The amount of money circulating in the UAE surged 29 per cent in 2005 over 2004 to Dh104.45 billion, the Central Bank's just-released year-end monetary statistics reveal. This massive rise further confirms steep inflation across the country, analysts said.



On the back of higher oil revenues due to the climbing price of crude, the money supply – which includes currency, notes and coins in circulation and monetary deposits in local currency – reached Dh104.45bn last year, from Dh80.82bn the prior year.



"The increase in money supply is not surprising given the high rates of actual inflation,” observed David Butter, a senior economist and Middle East analyst for London-based Economist Intelligence Unit (EIU).



The EIU said in a recent report that inflation exceeded 10 per cent in 2005, while Abu Dhabi-based investment bank Prime Emirates said it reached 15 per cent last year. The surge in money supply triggered the exceptional 2005 performance of the banking sector, the Central Bank's year-end statistics show.



The banking sector's total assets and liabilities rose 42 per cent to Dh638.01bn, from Dh449.75bn in 2004. Total bank deposits, meanwhile, rocketed 41 per cent to Dh409.67bn in 2005, over Dh290.5bn in 2004. "There was excess liquidity in the system in 2005 – so people were putting more money in banks. "Also, several banks underwent capital increases last year and there were lots of rights issues during the year,” said a senior Dubai-based banking analyst.



With so much money at their disposal, banks in the UAE underwent aggressive lending campaigns in retail and corporate banking – and to investors taking part in initial public offerings.



The result is illustrated in the numbers: the banks' credit increased some 42 per cent to Dh362.63bn, from Dh255.6bn in 2004. Inflation, meanwhile, will likely remain a concern due to the Central Bank's limited ability to curb growth in money supply, analysts said. By convention, central banks increase interest rates to curb borrowing and offset inflation. But since the dirham is pegged to the US dollar, the Central Bank can only raise interest rates in tandem with US rates. This has become problematic in recent years because inflation in the UAE is much higher than that recorded in America.



EIU predicts inflation will reach 8.5 per cent this year, with other estimates running as high as 10 per cent. Hence, the analysts said the Central Bank should fight inflation by tightening lending rules to reduce the money available for consumers and expanding its programme of certificates of deposits. The Central Bank did issue 31 per cent more such certificates – which absorb excess liquidity – in 2005 over 2004, to Dh21.03bn. (Emirates Today)

RELATED ARTICLES

08 December 2016 UAE Central Bank has an ambitious regulatory development programme underway, says senior official
27 November 2016 UAE Central Bank issues commemorative coin to honour country s heroes #UAE_Commemoration_Day
24 November 2016 Central Bank of UAE, Bank of Algeria sign MoU to boost co-operation in trade and finance
27 October 2016 UAE Central Bank announces M2 increase to AED1200.2 billion
18 October 2016 Central Bank approves expansion of financial activities of banks and financial institutions