The central bank governor of the United Arab Emirates on Tuesday called on the government to develop a comprehensive plan to tackle rampant inflation after ruling out de-pegging from the weak US dollar or revaluing the dirham.

In an interview with the Financial Times, Sultan bin Nasser al-Suwaidi said rising rents were the main factor behind soaring inflation in the booming oil-driven economy. He also argued that allowing the dirham to appreciate against the dollar would reduce the value of the UAE’s vast dollar-denominated holdings.

The governor found himself in the eye of a storm in December as pressure mount­ed in the business community for the oil-rich state to de-peg or revalue the currency. After studying the issue, he said the government on balance had decided not to tackle inflation caused by the rising cost of rent through the sole instrument of monetary policy.

“Everyone thought that a problem created by other issues could be solved by monetary policy and ex­change rate policy,” he said. “They learnt that from the economics books more applicable to the US and UK economies which are different in structure from the UAE.”

Many speculators bet billions of US dollars anticipating that the UAE would follow Kuwait’s decision last year to move to a basket of currencies in an effort to damp import-led inflation. Bankers say those speculators could face large losses if they wind down their positions.

Mr Suwaidi said government bodies in all seven emirates of the UAE should co-ordinate development plans better to cope with the inflation caused by the quickening pace of expansion. “It’s not an issue for a single authority to resolve,” he said. “We should all meet . . . and come up with conclusions, a decision, a plan,” he added, noting that the federal nature of the UAE, with seven emirates pursuing different development plans, made co-ordination difficult.

Dubai’s rapid real estate, tourism and business growth is being matched by newcomers such as Abu Dhabi, the UAE’s capital, and Ras al-Khaimah, creating bottlenecks in property, labour and materials that have pushed up inflation.

“The UAE economy is a powerful machine, running on big and small wheels – we need to align those wheels so we can go straight,” said Mr Suwaidi.

He said the government would release new inflation figures in April, but bankers estimate that the expatriate labour force faces inflation of around 15 per cent, despite rent caps imposed in Abu Dhabi and Dubai. Mr Suwaidi said 70 per cent of UAE imports came from countries whose currencies were tied to the US dollar.

The opening up of the real estate sectors in the UAE has contributed to a shortage in rental properties as Gulf and international investors snapped up units from government and private developers. The governor said up to 30 per cent of properties that could be rented in the past were no longer available.

He said the government should make a concerted effort to boost the amount of housing in the market.