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Gulf presses emergency button
Gulf states took emergency measures to boost confidence in the financial system on Sunday, including a rare cut by Saudi Arabia of its benchmark repo rate and a vow by the UAE to protect national banks and guarantee deposits.
- Reuters
- Published: 00:02 October 13, 2008
- In Abu Dhabi the general index was down 2.3 per cent to 3,133.51.
- Image Credit: Ahmed Ramzan/Gulf News
Riyadh (Reuters) Gulf states took emergency measures to boost confidence in the financial system on Sunday, including a rare cut by Saudi Arabia of its benchmark repo rate and a vow by the UAE to protect national banks and guarantee deposits.
The moves came as Gulf stock markets extended weeks of declines as investors fretted about the global financial crisis. Officials escalated efforts to shore up markets after verbal support last week did little to lift negative investor sentiment.
Saudi Arabia, which is expected to deploy other measures such as allowing share buybacks, cut its benchmark repurchase rate for the first time in nearly two years yesterday, signalling its desire to reduce lending rates.
It cut the repo rate to five per cent from 5.5 per cent for the first time since February 2007. It also lowered reserve requirements to 10 per cent from 13 per cent, bankers said, citing a memo sent to their treasuries.
Show me the money
"Sentiment will be better but actual liquidity will not improve until the promised money comes," said an Emirates Bank treasury manager. "The Saudi move is good because they reduced the reserve requirements so that will put some money into the system."
Despite last week's coordinated rate cuts by global central banks, including those of Kuwait and the UAE, world markets have not regained their footing as investors fret about the worsening financial turmoil. In the Gulf, Dubai's index dropped 5.92 per cent, Qatar was down more than six per cent, Oman shed 5.67 per cent and Kuwait dipped one per cent.
Shares in Dubai Ports World fell 18.18 per cent on the index, hitting a lifetime low at $0.45. The container port operator had priced its IPO last November at $1.30.
"This is really a very bad performance... it's definitely in line with the global strategy of liquidation - everyone just wants cash," says Mohammad Al Ami, head of the Naeem & Shares and Bonds international desk in the UAE.
The latest market declines come on the heels of weeks of similar losses prompting officials to roll out a slew of measures.
The Dubai Financial Market cut the limit on how far stocks can fall in one day to 10 per cent from 15 per cent. The decision was taken "in view of the exceptional global financial circumstances and the fluctuations currently witnessed in international markets", it said.
It also said the move was temporary, without indicating how long it would last.
Bourse rule: Cut-off of trading
The major securities and futures exchanges have procedures for coordinated cross-market trading halts if a severe market price decline reaches levels that may exhaust market liquidity.
These procedures, known as circuit breakers, may halt trading temporarily or, under extreme circumstances, close the markets before the end of normal close of the trading session.
Source: US Securities and Exchange Commission
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