The United Arab Emirates is sticking with plans to convert up to 10 percent of its currency reserves into euros but is waiting for a trend to develop in the currency, the central bank said on Sunday.
The UAE announced plans earlier this year to diversify its mostly dollar-denominated reserves, which stood at $23 billion in December, into euros, and markets are waiting for news of when this will happen.
Central Bank Governor Sultan Nasser al-Suweidi told reporters on the sidelines of a conference that the central bank was not buying euros at the moment.
"We're waiting for conditions to change. When there is a clear trend going up, you move into it. If it is going down, you wait for the bottom and buy. There is no trend at this point," Suweid said.
The euro was last at $1.2788.
Suweidi said the bank could also convert up to 10 percent of its reserves into gold, although he added that the bank had not bought gold yet and had very little in its reserves.
"I don't think it's appropriate to buy gold now - it's too expensive. The appropriate time might come very soon. We could go up to 10 percent," he said.
The UAE central bank controls only part of the foreign exchange reserves of the UAE, an oil-exporting federation of seven emirates. Other major holders include the investment arms of the emirates' governments.
RATES RAISED WITH FED: Suweidi said the bank was investing in short-term US government debt and AAA-rated corporate debt and had raised interest rates by 25 basis points to match the US Federal Reserve. The UAE's dirham is pegged to the dollar.
"We are in general investing in short-term debt instruments in the US because we expect (US) interest rates to go further up," he added.
Suweidi said he expected as many as two more interest rate increases from the Fed.
On raising UAE rates, Suweidi said: "We do that immediately to match the rise in the US We would have raised them by 25 basis points."
In April, for example, the UAE central bank raised the rate on benchmark one-week certificates of deposit to 4.75 percent, matching the Fed's quarter-point increase in March.
Suweidi said that if the US economy continued to suffer from pressure due to its twin budget and trade deficits, there would be further pressure on the dollar.
"The dollar is not overvalued now, since you have no substitute for the US dollar," he said.
When asked why the euro was an attractive currency, Suwedi said: "One reason is because the interest rate level in the euro has gone up. It used to be very low."
The euro hit a three-week high against the dollar on Friday as investors focused on the prospect of faster euro zone rate rises.
As widely anticipated, the Fed raised interest rates for the 17th successive time to 5.25 percent on Thursday, but it stirred financial markets by watering down its warnings about the need to tighten policy in the months ahead.