UAE Central Bank cuts repo rate to 1.5 per cent, matching Fed move

Dubai: The United Arab Emirates Central Bank cut its benchmark repo rate by a 0.5 percentage point to 1.5 per cent.

Kuwait slashed its key discount interest rate by 125 basis points, tracking a round of emergency rate cuts by major central banks.

Analysts said the changes, which also included moves to make access to emergency funding easier, made it more likely that other Gulf states would cut rates in coming days as authorities bid to ease liquidity tensions in the region.

The Kuwait cut added to central bank offers of funds to local lenders in recent days. The only Gulf state to delink its currency from the dollar, it cut the benchmark discount rate to 4.5 per cent from 5.75 per cent and the repo rate to 2.5 per cent from 3.5 per cent.

"The Kuwaiti move is likely to put pressure on other central banks in the region. They are likely to follow suit," said Mary Nicola, Middle East economist for Standard Chartered Bank in Dubai.

The UAE lowered its overnight repurchase rate to 1.5 per cent from two per cent and cut the borrowing rate on its emergency facility, making it much cheaper for banks to borrow the money.

"It is good the UAE] central bank realised its rate under the emergency facility was on the high side and reduced it," said the head of Treasury at an Abu Dhabi-based bank.

"The new rates are reasonable and a lot of banks will make use of the facility if they need the funds."

Some analysts said Saudi Arabia might respond with a cut in its repo rate by as much as 100 basis points in coming days.

Coordinated moves

The US Federal Reserve on Wednesday cut its key federal funds rate by 50 basis points to 1.5 per cent in a coordinated move with the European Central Bank (ECB) and Britain, Canada, Sweden and Switzerland. China also loosened monetary conditions.

Markets have tumbled around the world as the upheaval that began on Wall Street spread, effectively shutting down interbank and other loan markets. In the Gulf, interbank rates have risen in Saudi Arabia, Kuwait and the UAE.

Kuwait central bank chief Shaikh Salem Abdul Aziz Al Sabah said the move was driven by an assessment of world developments.

"It is basically related to the crisis sweeping the international money markets and the need to strengthen the local environment," he said.

The bank last cut rates, by 50 basis points, last January.

"It is a positive step but we expect more rate cuts," said Rola Dashti, head of Kuwait Economic Society.

The head of the Kuwaiti Banking Association (KBA), Abdul Majeed Al Shatti, said he expected the central bank to unveil new directions, adopting a more accommodative stance towards banks.

He did not elaborate but repeated KBA's demand for government institutions to boost deposits at private banks as a measure to increase liquidity.