ID :
51354
Thu, 03/19/2009 - 14:10
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Shortlink :
https://oananews.org//node/51354
The shortlink copeid
Banks welcome rate cut plan to boost liquidity
Banks have responded positively to Central Bank governor Sultan Bin Nasser Al Suwaidi's comments about plans to cut interest rates soon and the effectiveness of federal measures to improve liquidity.
"The monetary policy in the UAE will continue to be geared to maintaining low official interest rates to maintain some positive economic growth in the coming few years. The credit and banking policy will emphasise a reasonable but low rate of credit expansion and restricted banking expansion," Al Suwaidi was quoted as saying by the news agency WAM.
Al Suwaidi's comments however were not entirely unexpected. "The UAE Central Bank has been injecting liquidity into the banking system in order to boost local and foreign bank balance sheets as well as to spur lending by the banks. The decision to further cut interest rates isn't a surprise since it is but the next stage in seeking to revive private and consumer spending," according to David Butter, regional director for the Middle East and North Africa at the Economist Intelligence Unit (EIU).
"The decision, however, reveals that the UAE economy is still reeling from the effects of the global financial crisis," he added.
It is widely accepted that the UAE economy will not see the same levels of GDP growth as in recent years, but prudent economic policies of the past have ensured that extensive budget surpluses on the back of oil revenues are at the government's disposal to off-set expansionary monetary and fiscal policy.
Several measures to loosen credit conditions and inject liquidity have already been implemented.
In October, the government said it would guarantee bank deposits and protect lenders from credit risk.
In February, the Central Bank said it was working with the Finance Ministry to reduce interest rates on deposits, after lowering the overnight repurchase rate by 50 basis points to 1 per cent a month earlier.
Yesterday, banks rallied on the Abu Dhabi Securities Exchange, recording a 4.1 per cent increase over the previous day's value.
"The move from the Central Bank was expected from our point of view, and very welcomed too. There is still a need for accompanying measures in terms of monetary policy and how it can help the liquidity conditions ease," said Philippe Dauba-Pantanacce, senior economist for Middle East and North Africa at Standard Chartered Bank in Dubai.
However, Dauba-Pantanacce also warned that lowering interest rates should only be seen as part of the solution. "Our understanding is that indeed a more comprehensive plan is coming up and should address the various aspects of the liquidity situation, including the gap between loans and deposit faced by the banks", he said.
"The monetary policy in the UAE will continue to be geared to maintaining low official interest rates to maintain some positive economic growth in the coming few years. The credit and banking policy will emphasise a reasonable but low rate of credit expansion and restricted banking expansion," Al Suwaidi was quoted as saying by the news agency WAM.
Al Suwaidi's comments however were not entirely unexpected. "The UAE Central Bank has been injecting liquidity into the banking system in order to boost local and foreign bank balance sheets as well as to spur lending by the banks. The decision to further cut interest rates isn't a surprise since it is but the next stage in seeking to revive private and consumer spending," according to David Butter, regional director for the Middle East and North Africa at the Economist Intelligence Unit (EIU).
"The decision, however, reveals that the UAE economy is still reeling from the effects of the global financial crisis," he added.
It is widely accepted that the UAE economy will not see the same levels of GDP growth as in recent years, but prudent economic policies of the past have ensured that extensive budget surpluses on the back of oil revenues are at the government's disposal to off-set expansionary monetary and fiscal policy.
Several measures to loosen credit conditions and inject liquidity have already been implemented.
In October, the government said it would guarantee bank deposits and protect lenders from credit risk.
In February, the Central Bank said it was working with the Finance Ministry to reduce interest rates on deposits, after lowering the overnight repurchase rate by 50 basis points to 1 per cent a month earlier.
Yesterday, banks rallied on the Abu Dhabi Securities Exchange, recording a 4.1 per cent increase over the previous day's value.
"The move from the Central Bank was expected from our point of view, and very welcomed too. There is still a need for accompanying measures in terms of monetary policy and how it can help the liquidity conditions ease," said Philippe Dauba-Pantanacce, senior economist for Middle East and North Africa at Standard Chartered Bank in Dubai.
However, Dauba-Pantanacce also warned that lowering interest rates should only be seen as part of the solution. "Our understanding is that indeed a more comprehensive plan is coming up and should address the various aspects of the liquidity situation, including the gap between loans and deposit faced by the banks", he said.
