The UAE Central Bank kept its benchmark interest rate unchanged on Wednesday, shadowing the US Federal Reserve’s move which held its policy steady to counter persistent inflation and expansionary economic policies of the administration of US President Donald Trump.
In its first meeting since Mr Trump took control of the White House for his second stint as president of the country with the world’s largest economy, the Federal Open Market Committee kept the borrowing rates unchanged at 4.25 per cent to 4.50 per cent range.
After cutting the interest rate a full percentage point last year, Fed chairman Jerome Powell indicated that the US central bank would probably wait and watch markets before scaling back rates to boost the economy.
The FOMC said in a statement that inflation remains "somewhat elevated" while the nation's unemployment rate "has stabilised at a low level in recent months".
Most central banks in the GCC follow the Fed's policy rate moves due to their currencies being pegged to the US dollar, with Kuwait the only exception in the six-member economic bloc as its dinar is linked to several currencies.
The CBUAE kept its base rate for the overnight deposit facility at 4.40 per cent, it said in a statement on Wednesday.
It has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the base rate for all standing credit facilities.
The base rate signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE, the banking regulator said.
UAE retail investors are closely assessing how the latest interest rate decision will affect their portfolios. Recent data from digital trading and investment platform eToro revealed that 57 per cent of UAE retail investors factor interest rate changes into their investment strategies, underscoring the significant influence of monetary policy on market sentiment.
"Investors are in a tug-of-war between the impacts of interest rate decisions and corporate earnings, both of which play significant roles in shaping market direction," said George Naddaf, managing director for Middle East and North Africa at eToro.
The UAE economy, which has maintained a robust growth momentum since the Covid-19 pandemic-driven slowdown, grew by 3.6 per cent annually in the first half of last year driven by the non-oil sector.
The country's real gross domestic product at constant prices rose to Dh879.6 billion ($239.5 billion) for the January-June period, while non-oil GDP increased by 4.4 per cent annually to reach Dh660 billion, contributing 75 per cent to the total, the Ministry of Economy said in December.
The Central Bank estimates the UAE’s economy to have grown by 4 per cent last year and expects the pace of economic expansion to accelerate to 4.5 per cent in 2025. The non-oil economy which is projected to have expanded by 4.9 per cent last year is expected to remain steady at 5 per cent growth this year, the CBUAE said in its fourth quarter 2024 review.
The Central Bank also revised its 2024 estimate for UAE inflation downwards to 1.8 per cent from 2.2 per cent and said it expects inflation to reach about 2 per cent, “driven mainly by non-tradable components of the consumer basket, partially offset by moderating energy prices”.
The biog
Hobby: "It is not really a hobby but I am very curious person. I love reading and spend hours on research."
Favourite author: Malcom Gladwell
Favourite travel destination: "Antigua in the Caribbean because I have emotional attachment to it. It is where I got married."
Which honey takes your fancy?
Al Ghaf Honey
The Al Ghaf tree is a local desert tree which bears the harsh summers with drought and high temperatures. From the rich flowers, bees that pollinate this tree can produce delicious red colour honey in June and July each year
Sidr Honey
The Sidr tree is an evergreen tree with long and strong forked branches. The blossom from this tree is called Yabyab, which provides rich food for bees to produce honey in October and November. This honey is the most expensive, but tastiest
Samar Honey
The Samar tree trunk, leaves and blossom contains Barm which is the secret of healing. You can enjoy the best types of honey from this tree every year in May and June. It is an historical witness to the life of the Emirati nation which represents the harsh desert and mountain environments
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Global state-owned investor ranking by size
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1.
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United States
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2.
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China
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3.
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UAE
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4.
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Japan
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5
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Norway
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6.
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Canada
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Singapore
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8.
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Australia
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Saudi Arabia
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South Korea
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Zayed Sustainability Prize
1,000 Books to Read Before You Die: A Life-Changing List
James Mustich, Workman
Who are the Soroptimists?
The first Soroptimists club was founded in Oakland, California in 1921. The name comes from the Latin word soror which means sister, combined with optima, meaning the best.
The organisation said its name is best interpreted as ‘the best for women’.
Since then the group has grown exponentially around the world and is officially affiliated with the United Nations. The organisation also counts Queen Mathilde of Belgium among its ranks.
