Dubai: Taking out loans across most of the GCC countries just got cheaper on Thursday as central banks cut interest rates.
Central banks in the UAE, Saudi Arabia, Bahrain, and Qatar all announced they cut their interest rates by 25 basis points after the US Federal Reserve lowered its rates for the first time since the financial crisis. Kuwait’s central bank said it will not cut its benchmark rate, though, keeping it unchanged.
The move comes as all four countries’ currencies are pegged to the US dollar, while Kuwait’s currency is pegged to a basket of international currencies.
For banking consumers, the cut in interest rates is likely to mean lower cost of borrowing for loans, credit cards, and mortgages. Interest rate cuts have traditionally been meant to drive corporate and consumer spending to boost economic growth. Lower interest rates also tend to boost inflation rates as spending increases.
Announcing its historic decision to cut rates, the US Federal Reserve said it did so to mitigate the risks of a possible economic downturn. The central bank said it hoped the cut will help keep the US economy healthy, especially against macroeconomic risks coming from trade tensions and slower economic growth across the world.
The Fed also hinted that it may cut rates again this year to insulate the US economy from risks.
For banks, the cut in rates can hurt earnings as banks see more interest income with higher interest rates. In the past two years, interest income for UAE banks has been on the rise as the Federal Reserve (and the UAE Central Bank) hiked interest rates, contributing to stronger income for banks.