BEIJING, 2 April 2008 — United Arab Emirates Prime Minister Sheikh Mohammad ibn Rashid Al-Maktoum said yesterday a committee was studying the country’s dollar peg, although it would be retained for now.

Speculation that the UAE and some of its Gulf Arab neighbors will sever their currencies’ link to the tumbling US dollar has mounted as inflation surges across the world’s biggest oil-exporting region.

“A committee is studying this position and they will report to me as prime minister,” Sheikh Mohammad told reporters aboard a plane from Beijing to Shanghai, without giving details.

“Up to now we are still with the dollar,” he said in rare comments to the media. “We are still with the dollar of course.”

Inflation in the UAE, a federation of seven emirates, hit a 19-year peak of 9.3 percent in 2006 and probably accelerated to 10.9 percent last year, according to an estimate by National Bank of Abu Dhabi.

Rifts have been growing across the Gulf on how to deal with inflation since Kuwait severed its dollar peg last May, saying that the dollar’s decline on global markets was fueling inflation by making some imports more expensive.

Sheikh Mohammad’s comments come after Qatar’s prime minister said in February the oil and gas exporter was studying currency reform among options to combat inflation at a near-record peak of 13.7 percent. The Qatari riyal was 30 percent undervalued and contributing to 40 percent of inflation, Sheikh Hamad ibn Jassim Al-Thani said.

UAE Central Bank Governor Sultan Nasser Al-Suweidi said yesterday the Gulf state would not change its dollar peg without the agreement of its Gulf neighbors, which also include Oman and Bahrain.

But some investment banks, including Standard Chartered and Deutsche Bank, expect the UAE and Qatar will sever their dollar pegs and start tracking currency baskets as early as this year.

Forward rates show investors betting the UAE will allow its dirham to appreciate 2.9 percent in a year and 4.9 percent in two years.

China Deals Likely

The UAE prime minister met with Chinese President Hu Jintao late Monday as part of his visit aimed at boosting fast-growing economic ties between the two countries.

Sheikh Mohammad, who is also vice-president of the Emirates and ruler of Dubai, arrived in Beijing Monday, the start of a four-day official visit.

“The UAE vice president lauded the volume of trade exchange between his country and China and the outstanding economic ties” between the two nations, the Emirates official WAM agency reported.

Trade between the countries has surged in recent years, with the UAE China’s second-biggest trade partner in the Gulf after Saudi Arabia. Four accords were to be signed during the visit, according to an Emirates source, including one on cooperation in the defense sector.

Sheikh Mohammad was expected to meet Vice President Xi Jinping and Premier Wen Jiabao tomorrow, the last day of his visit. He will participate in a university roundtable and a bilateral economic forum in Shanghai.