UAE is unlikely to be affected from the oil prices plunge because of the benefit of US dollar

The UAE’s Gross Domestic Product is unlikely to be affected from the drop in oil prices since the country is currently benefiting from a strong US dollar, according to Mubarak Al Mansoori, Governor of the Central Bank of the UAE, who spoke at a conference in Abu Dhabi on Monday.

The UAE’s dirham is pegged to the dollar.

“It will affect us (lower oil prices) but we have financial capacity in terms of banks and sovereign wealth funds. Banks are in a good position today. Business is as usual,” said Mubarak Al Mansoori he said while taking part in a panel discussion at the Global Financial Markets Forum.

Oil prices have been plunging in the last few months due to oversupply and weak demand. From $115 in June last year, Brent Crude dropped to less than $50 in January.

The central bank chief also justified UAE’s currency being pegged to the dollar.

“It helps the UAE. We export to neighbouring countries whose currencies are linked to the dollar. When you are linked to the dollar you have to be in sync with your monetary policy,”

“We embarked on a program to stem a speculation or bubble. We put a regulation in place in terms of real estate exposure and put a limit on personal loans. All of these things give you stability. Our banks are in a strong position, and they have taken a lot of provision up to now.”

He said that central bank is encouraging banks to lend to Small and Medium Enterprises (SME) and be more efficient in their services.

“We need to promote the element of growth. We are pushing banks for SME lending and improve efficiency in terms of services.”

Speaking about cyber security, he said it is a concern and there will be a new regulation related to digital payments.

“We have an institution to cover cyber security as banking sector moves towards digital payment. We are embarking on a lot of projects like Dubai Expo and Abu Dhabi vision 2030. We need to deepen our financial market and have a debt law issued and bankruptcy law issued.”

He said they are working with Islamic banks to have one Sharia board to cover all Islamic banks.

“This (Sharia board) will help standardise regulations so that they become more efficient without losing the side of stability.”

Executive President of Central Bank of Oman, Hamood Sangour Al Zadjali said low oil price will not benefit the world economy.

“A easonable price between $80 and $100 benefits everyone,” said Al Zadjali while taking part in the panel discussion.

Talking about the past global financial crisis and its implications, he said there are lessons to be learnt from the crisis.

“Banks were not strictly applying international standards and regulators were not properly supervising the financial institutions, which led to the collapse of many institutions. After the financial crisis, regulators started to be stricter in their supervisory role.”