The Bank said it expected inflation
to fall below zero before picking up "notably" towards the end of the year as the effect of lower oil and food prices fades.
BAM's governor, who was speaking at a press conference following the Bank's council meeting, expected inflation
to stand at 0.
The latest estimate of 10-year expected inflation
The apex bank said that it expected inflation
to fall close to its 5 percent target by the end of 2014.
The International Monetary Fund in its Regional Economic Outlook Update in June said expected inflation
figures for the UAE for the year stand at a mere 1.
The level surprised analysts who had expected inflation
to be broadly in line with July's level.
Comments from Governor Isarescu last week alluding to a lower than expected inflation
trajectory had already led us to change our monetary policy outlook.
The FOMC said it continued "to see downside risks to the economic outlook," and that it expected inflation
over the medium term would run "at or below" the central bank's 2.
The Bank said that they expected inflation
to go up to 2.
This means that the nominal interest rate can be separated into the real rate plus the expected inflation
rate, In other words, if investors hope to get a real return of 3 percent on what they lend, and they expect inflation to be 2 percent, they charge 5 percent interest.
He also said he expected inflation
averaging around 1.
Probability quantification methods, based on the influential Carlson and Parkin (1975) concept, are commonly used to derive numerical estimates of perceived and expected inflation
on the basis of qualitative survey data.