Last week, the US Fed reduce the overnight lending price by 25 basis points (bps) for the very first time because 2009 and hinted it could reduce once again this year. The GCC central banks largely move in lockstep with the US to shield their currencies’ peg to the dollar. But as the Fed raised prices nine occasions because 2015, the GCC central banks had been unable to reduce interest prices to aid climate the impact of reduce oil costs on their economies.
Most GCC central banks instantaneously followed the US Fed and reduce their important policy prices.
The central banks in Saudi Arabia, the UAE, Qatar and Bahrain reduce their benchmark interest prices by 25bps.
Kuwait, the only GCC nation with a basket-pegged currency, kept its policy price on hold, as has been the case in the previous 12 months.
The Central Bank of Oman could preserve the 50bps spread among its policy price and the 1-month Libor price, according to the Institute of International Finance (IIF).
‘The latest cut in interest rates would help the economic recovery process in GCC countries. Monetary easing would make borrowing cheaper for investors. Lower interest rates will make credit more available to the private sector and provide a window of opportunity for companies to refinance loans at a lower cost. Despite lower oil prices, liquidity conditions in the region still look healthy,’ IIF mentioned in a report.
IIF projects GCC non-oil development to choose up from two.1 per cent in 2018 to two.eight per cent in 2019 and two.9 per cent in 2020. It mentioned, if reduce interest prices are accompanied by softening of the US dollar, there is danger of additional reduce in the GCC actual estate costs.
‘A cut in policy rates would lead to lower mortgage interest rates, making it more attractive for potential home-buyers while easing the debt burden on existing borrowers.’
With reduce interest prices, each GCC governments and private sectors will have an chance to tap capital markets at a reduce price, which could give new breath to huge infrastructure projects, the IIF mentioned.
‘Solid bond returns, capital markets upgrades, and improving fundamentals provide the GCC with the opportunity to attract higher foreign inflows and refinance maturing debt at a lower cost,’ it added.
IIF expects greater stress on the net interest margins of the GCC banks, particularly these with a greater concentrate on customer lending.
Information Source: Muscat Daily