UAE Central Bank cuts interest rate

Abu Dhabi: The UAE Central Bank announced this morning that it has lowered the interest rate on its repurchase of Certificates of Deposits (CDs) (Repo), by 75 basis points from 4.25 per cent to 3.50 per cent.

The reduction comes in line with the new level of interest rate on the US dollar Federal Funds (short-term dollar interest rate as determined by the US Federal Reserve Bank), the Central Bank revealed in a statement.

The aggressive cut comes to provoke serious concerns about the soaring inflation rates and the negative impact of applying monetary policies suitable for a slowing down economy such as the US.

Senior officials from the National Bank of Abu Dhabi urged the authorities to seriously revise the exchange rate within the peg system to address the risks of inflationary pressures on businesses and individuals.

“Lower interest rates will result in increasing demand for borrowing and hence increasing inflation, and the current exchange rate of Dh3.673 undervalues the currency by at least 30 per cent in my personal assessment,'' Saif A. Al Shahhi, senior manager of the Domestic Banking Division at the National Bank of Abu Dhabi (NBAD).

“The prevailing rate negatively affects the revenues of many corporations, given that the UAE imports most of its needs, and although many companies try to hedge themselves, yet a revision of the exchange rate will positively impact corporate performance in the UAE,'' added Abdullah K. Al Otaiba, head of NBAD's corporate banking group.