Dubai: The central banks of the UAE and Saudi Arabia lowered interest rates on Thursday, effectively making it cheaper for companies and individuals to borrow money.
The central banks cut rates by 25 basis points effective today, for the second time this year after the US Federal Reserve lowered its key interest rates. The Central Bank of the UAE said that interest rates on certificates of deposits as well as repo rates on short-term borrowing have been decreased.
The cuts in borrowing rates in the region come as both the UAE and Saudi currencies are pegged to the US dollar.
The cut from the Federal Reserve is the second one in over a decade and comes amid concerns about economic growth and trade wars. The Fed said the reduction in rates is aimed at keeping the US economy strong, and left the door open for yet another cut in rates this year.
Traditionally, lower interest rates are meant to encourage consumers to borrow money from banks. Central banks resort to this monetary policy when they are trying to boost corporate and consumer spending in order to drive economic growth and with it, inflation.
For banks in the UAE, lower interest rates will mean some pressure on their income. Over the past three years, banks in the country have seen their interest income rise as the Federal Reserve (and the UAE Central Bank) hiked interest rates amid optimism on economic growth.
The Fed had earlier said that its bullish views on the economy have been hurt by the rising trade tensions between the US and China - tensions, which have also hurt business sentiment and resulted in a slowdown in the manufacturing sector.