The UAE central Bank cut its benchmark interest rates on Thursday. Sammy Dallal / The National
The UAE central Bank cut its benchmark interest rates on Thursday. Sammy Dallal / The National
The UAE central Bank cut its benchmark interest rates on Thursday. Sammy Dallal / The National
The UAE central Bank cut its benchmark interest rates on Thursday. Sammy Dallal / The National

UAE and Saudi Arabia follow Fed lead and cut interest rates


Sarmad Khan
  • English
  • Arabic

The Central Bank of the UAE and other regulators in the GCC economic bloc cut benchmark interest rates on Thursday after the US Federal Reserve lowered its key rates for a second time this year, without committing to lowering them further in 2019.

The banking regulator in the UAE reduced the interest rate by 25 basis points (bps) on its certificate of deposits, the monetary policy instrument through which changes in interest rates are transmitted to financial institutions.

The rate reduction is effective from Thursday, which is also when the repo rate on borrowing short-term liquidity from the central bank against certificates of deposits lowers by 25 bps.

The Fed reduced the federal funds rate target, its main policy rate, by a quarter-percentage point to a range of 1.75 to 2 per cent. The widely expected slashing of benchmark rates by the US central bank is its second downward revision in consecutive quarters. The rate cut in July was the first since the financial crisis, which came on the back of nine rate increases since 2015, when the Fed started gradually raising the cost of borrowing.

The Fed cited a strong labour market and rising economic activity in a statement on the move.

“We took this step to help keep the US economy strong in the face of some notable developments and to provide insurance against ongoing risks,” Fed chairman Jerome Powell, said.

The strength of the US economy pushed rates higher last year, however, recent US economic data sent mixed signals to the Fed with consumer spending and retail sales growth, an indication of consumer sentiment, weakening. There are, however, signs of strength in manufacturing activity and the labour market.

“We have a hawkish rate cut — meaning even though the Fed has cut the interest rate today ... there are no clear signals in relation to further rate cuts,” Naeem Aslam, chief market analyst at UK-based TF Global Markets, said in a research note. “In other words, the fed is no rush to cut the interest rate again.”

Most central banks in the GCC follow the Fed's moves on key interest rates because their currencies are pegged to the US dollar, with the exception of Kuwait, whose dinar is linked to a basket of currencies.

The Riyadh-based Saudi Arabian Monetary Authority lowered its repo rate from 275 bps to 250 bps, and its reverse repo rate from 225 bps to 200, saying the decision is consistent with Sama’s objective of preserving monetary stability amid “evolving developments in global financial markets”.

Kuwait's banking regulator said it is keeping its discount rate unchanged at 3 per cent.

"The rate cuts could not have come soon enough for the GCC," Bilal Khan, executive director of research for Middle East, North Africa and Pakistan at Standard Chartered, said. "The switch from hikes until the end of last year to cuts finally allows (some) GCC central banks to use monetary policy to counter the business cycle.  While, on the margin, this is welcome relief ..... government spending still plays an out-sized role in driving GCC economic activity."

The Fed, which adopted a more dovish stance and paused rate hikes in 2019, raised rates last year despite the ongoing US-China trade war threatening the US and global growth, forcing the International Monetary Fund and The World Bank to cut estimates for world economic growth this year.

Mr Powell on Wednesday said that “moderate” policy moves should be sufficient to sustain the US economic expansion, which prompted a Twitter tirade from US President Donald Trump.

"Jay Powell and the Federal Reserve Fail Again. No "guts," no sense, no vision! A terrible communicator!" Mr Trump tweeted.

Mr Trump has consistently and openly heaped pressure on the country’s central bank and on Mr Powell, in particular, through repeated statements and fiery tweets.

The president, who is campaigning for 2020 re-election has argued for more aggressive interest rates cuts to compete with other countries that have lower rates.

Despite the Fed not clearly guiding the market on further rate lowering this year, financial markets expect this to happen in the forthcoming meetings in October and December.

“We believe, with limited confidence, that there could be another rate cut of 25 basis points at the October meeting," said David Kohl, chief currency economist, at Julius Baer. "The rather hawkish rate cut consolidates marginally the support for the US dollar."

James McCann a senior economist with Aberdeen Standard Investments said while he expects the Fed to deliver 25bps cuts in October and December, "there is a clear risk that the Fed opts to pause at the next meeting before moving in December ... this would push the final move into Q1 next year, at which point the fed funds target range would bottom at 1.25-1.5 per cent."

The language of diplomacy in 1853

Treaty of Peace in Perpetuity Agreed Upon by the Chiefs of the Arabian Coast on Behalf of Themselves, Their Heirs and Successors Under the Mediation of the Resident of the Persian Gulf, 1853
(This treaty gave the region the name “Trucial States”.)


We, whose seals are hereunto affixed, Sheikh Sultan bin Suggar, Chief of Rassool-Kheimah, Sheikh Saeed bin Tahnoon, Chief of Aboo Dhebbee, Sheikh Saeed bin Buyte, Chief of Debay, Sheikh Hamid bin Rashed, Chief of Ejman, Sheikh Abdoola bin Rashed, Chief of Umm-ool-Keiweyn, having experienced for a series of years the benefits and advantages resulting from a maritime truce contracted amongst ourselves under the mediation of the Resident in the Persian Gulf and renewed from time to time up to the present period, and being fully impressed, therefore, with a sense of evil consequence formerly arising, from the prosecution of our feuds at sea, whereby our subjects and dependants were prevented from carrying on the pearl fishery in security, and were exposed to interruption and molestation when passing on their lawful occasions, accordingly, we, as aforesaid have determined, for ourselves, our heirs and successors, to conclude together a lasting and inviolable peace from this time forth in perpetuity.

Taken from Britain and Saudi Arabia, 1925-1939: the Imperial Oasis, by Clive Leatherdale

MATCH INFO

Jersey 147 (20 overs) 

UAE 112 (19.2 overs)

Jersey win by 35 runs

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Total seasons 24

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Milivojevic 76' (pen), Van Aanholt 88'

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Sole survivors
  • Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
  • George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
  • Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
  • Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
UAE currency: the story behind the money in your pockets
Know before you go
  • Jebel Akhdar is a two-hour drive from Muscat airport or a six-hour drive from Dubai. It’s impossible to visit by car unless you have a 4x4. Phone ahead to the hotel to arrange a transfer.
  • If you’re driving, make sure your insurance covers Oman.
  • By air: Budget airlines Air Arabia, Flydubai and SalamAir offer direct routes to Muscat from the UAE.
  • Tourists from the Emirates (UAE nationals not included) must apply for an Omani visa online before arrival at evisa.rop.gov.om. The process typically takes several days.
  • Flash floods are probable due to the terrain and a lack of drainage. Always check the weather before venturing into any canyons or other remote areas and identify a plan of escape that includes high ground, shelter and parking where your car won’t be overtaken by sudden downpours.

 

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UEFA CHAMPIONS LEAGUE FIXTURES

All kick-off times 10.45pm UAE ( 4 GMT) unless stated

Tuesday
Sevilla v Maribor
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Napoli v Feyenoord
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Basel v Benfica
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The burning issue

The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.

Part three: an affection for classic cars lives on

Read part two: how climate change drove the race for an alternative 

Read part one: how cars came to the UAE

Specs

Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request

The specs
Engine: 4.0-litre flat-six
Power: 510hp at 9,000rpm
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
Price: From Dh801,800
The%20new%20Turing%20Test
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MOUNTAINHEAD REVIEW

Starring: Ramy Youssef, Steve Carell, Jason Schwartzman

Director: Jesse Armstrong

Rating: 3.5/5

The National's picks

4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young

All about the Sevens

Cape Town Sevens on Saturday and Sunday: Pools A – South Africa, Kenya, France, Russia; B – New Zealand, Australia, Spain, United States; C – England, Scotland, Argentina, Uganda; D – Fiji, Samoa, Canada, Wales

HSBC World Sevens Series standing after first leg in Dubai 1 South Africa; 2 New Zealand; 3 England; 4 Fiji; 5 Australia; 6 Samoa; 7 Kenya; 8 Scotland; 9 France; 10 Spain; 11 Argentina; 12 Canada; 13 Wales; 14 Uganda; 15 United States; 16 Russia