Loans may get cheaper in UAE as central bank cuts interest rates

The central banks of the UAE, Kuwait, Bahrain and Saudi Arabia late on Wednesday cut interest rates following the US Federal Reserve's decision to reduce rates by 25 basis points earlier on Wednesday.
The cut in interest rates will reduce borrowing cost for personal loans, auto loans and home loans etc.
All these GCC countries' currencies are pegged to the US dollar, hence, they follow the Fed's monetary policy for interest rates.
The Central Bank of the UAE (CBUAE) will lower interest rates applied to the issuance of its Certificates of Deposits from Thursday, October 31, 2019, in line with the decrease in interest rates on US dollar, following the Federal Reserve Board's decision to decrease the Federal Funds Rate by 25 basis points at its meeting.
The Repo Rate applicable to borrowing short- term liquidity from CBUAE against Certificates of Deposits has also been decreased by 25 basis points.
Certificates of Deposit, which CBUAE issues to banks operating in the country, are the monetary policy instrument through which changes in interest rates are transmitted to the UAE banking system. The Federal Reserve on Wednesday cut interest rates for the third time this year in a move to ensure the US economy weathers a global trade war without slipping into a recession, but signaled its rate-cut cycle might be at a pause.
Kuwait cut its discount rate by 25 basis points to 2.75 per cent from 3 per cent after staying pat in July and September when other major Gulf central banks followed the Federal Reserve.
The decision aims to "reduce the cost of borrowing in the Kuwaiti dinar, maintain a comfortable margin for the Kuwaiti dinar, and prove a supportive environment for investment," the central bank said in a tweet.
The Saudi Arabian Monetary Authority (SAMA) cut its repo rate, used to lend money to banks, to 225 basis points from 250 bps, and the reverse repo, the rate at which commercial banks deposit money with the central bank, by the same margin to 175 bps.
Bahrain's central bank, which had avoided a rate cut in September, cut all its key rates by 25 basis points.
It cut its one-week deposit facility to 2.25 per cent, its overnight deposit rate to 2 per cent, its one-month deposit rate to 2.6 per cent. It cut its lending rate to 4 per cent from 4.25 per cent.
-waheedabbas@khaleejtimes.com