Money supply has a strong bearing on a country's inflation rate and exchange rates. Silvia Razgova / The National
Money supply has a strong bearing on a country's inflation rate and exchange rates. Silvia Razgova / The National

Business

Money supply rising in UAE Central Bank data

What's Up: The UAE Central Bank reported yesterday that by the most liquid measures, the country's money supply grew in the low single digits in October.

Wam

December 24, 2012

The UAE Central Bank reported yesterday that by the most liquid measures, the country's money supply grew in the low single digits in October.

Money supply has a strong bearing on a country's inflation rate and exchange rates.

Central banks often engineer the money supply to achieve policy objectives in these areas.

The Central Bank said that money supply M0 (currency in circulation plus currency at banks) increased 4.4 per cent from Dh54.8 billion at the end of September to Dh57.2bn at the end of October.

The Central Bank said a broader measure of the money supply, the money supply aggregate M1 (currency in circulation plus monetary deposits, such as current accounts and call accounts at banks), increased 1.4 per cent, from Dh289.8bn to Dh293.8bn in the same period.

Yesterday's report from the Central Bank contained a wealth of data about the many facets of money supply.

- Money supply aggregate M2, which consists of M1 and quasi-monetary deposits (resident time and savings deposits in dirhams, commercial prepayments in dirhams and resident deposits in foreign currencies), decreased 0.1 per cent, from Dh845.5bn at the end of September to Dh844.7bn at the end of October.

- The money supply aggregate M3 (M2 plus government deposits at bank operating in the UAE as well as at the Central Bank) increased 1.1 per cent, from Dh1.068 trillion at the end of September to Dh1.079tn at the end of October.

- Total bank deposits increased 1.6 per cent during October to close at Dh1.162tn.

- During the first 10 months of the year, M2 increased 2.3 per cent, while bank loans and advances rose 3 per cent and total bank deposits increased 8.7 per cent.

The UAE's annual consumer price inflation rate was 1.05 per cent at the end of September, up a tick from 0.95 per cent in August.

* WAM, with additional reporting by the National staff

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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