Business | Markets
UAE holds rates as others in Gulf match Fed move
The UAE decided on Thursday not to match the Federal Reserve's interest rate cuts, as other Gulf nations followed the US central banks move to ease credit conditions.
- Reuters
- Published: 23:56 October 30, 2008
Dubai, Abu Dhabi: The UAE decided on Thursday not to match the Federal Reserve's interest rate cuts, as other Gulf nations followed the US central banks move to ease credit conditions.
Saudi Arabia joined Kuwait and Bahrain in lowering rates on Thursday.
The latest round of Gulf rate cuts was aimed at defrosting frozen interbank lending rates. But the UAE decided it was not a useful tool and opted to stay on the sidelines.
The UAE, which pegs its currency to the dollar, left its rates untouched, according to Central Bank sources, despite the Federal Reserve's 50-basis-point rate cut on Wednesday. The UAE had lowered rates earlier this month, following a similar move by the Fed.
"We think cuts are not having the impact on local money markets and it is not meaningful at this point to cut," one central bank official said. A UAE Central Bank spokesman declined to comment.
Qatar, which sat out the last round of rate cuts earlier in October, also did not move interest rates immediately.
The latest move by Saudi Arabia marks the second reduction of its benchmark repurchase rate this month. The bank - which had not lowered the repo rate in four years prior to October - said easing inflationary pressures and expectations made the cut possible.
It cut the rate by 100 basis points to four per cent.
Intention
"The central bank's primary intention is to lower the cost of funding, which is a great concern for the private sector," said John Sfakianakis, chief econ-omist at SABB bank, HSBC's Saudi affiliate.
The Gulf has massive infrastructure projects under way designed to diversify its economic away from relying on oil export revenues. Many of these projects are public-private partnerships - but private investors are finding it difficult during the global credit crunch to access abundant and cheap funds.
Gulf officials, like the rest of the world, have raced to alleviate the impact of the global financial crisis. They have slashed rates, guaranteed bank deposits, supported stock markets and poured billions into their banking systems.
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