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Monetary easing to speed up GCC economic recovery

Tuesday, 08 06 2019, Category: Economy, Country: Gulf Cooperation Council
As most central banks in the GCC last week reduced their key policy rates following the US Fed decision, this is expected to speed up economic recovery and give a boost to business activity in the region.

Last week, the US Fed cut the overnight lending rate by 25 basis points (bps) for the first time since 2009 and hinted it may cut again this year. The GCC central banks largely move in lockstep with the US to protect their currencies' peg to the dollar. But as the Fed raised rates nine times since 2015, the GCC central banks were unable to lower interest rates to help weather the effect of lower oil prices on their economies.

Most GCC central banks instantly followed the US Fed and cut their key policy rates.

The central banks in Saudi Arabia, the UAE, Qatar and Bahrain cut their benchmark interest rates by 25bps.

Kuwait, the only GCC country with a basket-pegged currency, kept its policy rate on hold, as has been the case in the past 12 months.

The Central Bank of Oman may maintain the 50bps spread between its policy rate and the one-month Libor rate, 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 said in a report.

Source: MENA FN
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