Strong growth in the UAE’s non-oil economy in 2018 is expected to compensate for challenges arising from an increase in interest rates, according to the chief of the UAE’s Central Bank.
Mubarak Al Mansouri, governor of the UAE Central Bank, reiterated his projections for the UAE’s non-oil gross domestic product to grow at a rate of 3.5 per cent this year, up from around 2.9 per cent in 2017.
“There will be an impact [as a result of interest rate hikes]. However, if you look at the expected growth rate, I’m hoping this will compensate for such increase in cost of borrowing,” he told reporters on Tuesday.
The UAE, whose currency is pegged to the dollar, is expected to hike interest rates this year to match with the US Federal Reserve’s planned rate increases. The US central bank is projected to hike rates three or four times in 2018.
“I want to stress that this currency regime helped the UAE during the many years we’ve had it implemented and there’s no change in terms of our view on that and as a policy,” Al Mansouri said.
Speaking at the Global Financial Markets Forum in Abu Dhabi, the governor also said the rift with Qatar has not affected the UAE banking system. Speaking to Bloomberg TV, he said that the UAE’s banks are seeing more deposits and still maintain strong liquidity.
In a separate panel discussion, Al Mansouri said that blockchain technology and other innovative financial technologies are beneficial to the banking sector, especially in terms of payment systems.
Alongside governors from the central banks of Egypt, Kuwait and Saudi Arabia, Al Mansouri discussed the importance of regulations in the banking system and the need to upgrade practices in order to turn the UAE into a global financial hub aligned with international standards.
“I think the UAE has learnt a lesson from the last financial crisis, and as a result, we have developed our regulations so that there isn’t excessive exposure or inflow into a certain sector … All these contribute to stability,” he said.
Also speaking on the panel was Ahmad Al Kholifey, governor of the Saudi Arabia Monetary Authority, who said he was fully convinced that current regulations in the Kingdom were sufficient but that more transparency and discipline are needed both in markets and on the fiscal side.
He added that the Authority has recently started using Blockchain technology, and that such technology was definitely disturbing the behaviour of central banks.