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17 March 2020
HALAL ECONOMY

GCC central banks cut rates following the Fed’s decision

The cuts follow stimulus packages launched by some GCC central banks over the past few days worth a combined $60 billion to contain the impact of Covid-19

The Saudi riyal, the UAE’s dirham, and the Bahraini dinar are pegged to the US dollar and the central banks in the respective countries follow the US Federal Reserve on interest rate moves/Bloomberg

by Kudakwashe Muzoriwa

The Saudi Arabia Monetary Authority (SAMA), the Central Bank of the UAE (CBUAE), the Central Bank of Bahrain (CBB) and the Central Bank of Kuwait (CBK) have slashed key interest rates following an emergency move taken by the US Federal Reserve in response to the impact of the coronavirus outbreak.

The UAE’s central bank reduced the interest rate applicable to the one-week certificates of deposit by 75 basis points (bps) and maintained other rates at 50 bps.

CBUAE stated that it has maintained the repo rate, applicable to borrowing short-term liquidity from the regulator against certificates of deposits at 50 bps and reduced rates applicable to the interim margin lending facility (IMFL) and the collateralized Murabahah facility (CMF) by 50 bps.

Most Gulf central banks tend to follow the US Fed because their currencies are pegged to the US dollar.

Kuwait's central bank cut its deposit rate by 100 bps to 1.5 per cent, its lowest ever. The regulator also slashed its overnight, one-week and one-month repo rates by 100 bps to one per cent, 1.25 per cent and 1.75 per cent respectively.

CBK said that the historical low-interest rate aims to reduce the cost of borrowing across economic sectors for both individuals and corporations, to foster an atmosphere conducive to sustainable economic growth, and to maintain monetary and financial stability.

The Saudi central bank also reduced its repo rate by 75 basis points from 1.75 per cent to one per cent and the reverse repo rate by 75 basis points from 1.25 per cent to 0.50 per cent in a bid to preserve the Kingdom’s monetary stability given evolving global developments.

Additionally, CBB also reduced key interest rate applicable to one-week deposit facility from 1.75 per cent to one per cent. The central bank also slashed the overnight, the one-month and the CBB lending rate from 1.50 per cent to 0.75 per cent, 2.20 per cent to 1.45 per cent and 2.45 per cent to 1.70 per cent respectively.

The Saudi riyal, the UAE’s dirham, and the Bahraini dinar are pegged to the US dollar and the central banks in the respective countries follow the US Federal Reserve on interest rate moves.


RELATED STORIES: SAMA CBK CBB CBUAE US Federal Reserve Covid_19

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