Saudi, UAE cenbanks slash key interest rates

The UAE central bank reduced its benchmark overnight repurchase rate by 50 basis points on Monday to one percent to boost lending to shore up the economy.

"With the slowdown of the world economy and the fall in inflationary pressures, a rate cut at this juncture will support domestic economic activity and foster business confidence," the central bank said in a statement.

"This 50 basis point cut should further reduce the cost of liquidity supporting facilities implemented by the central bank to support banks," it added.

The central bank last month started a UAE dirham-dollar swap facility and, along with the finance ministry, it has launched 120 billion dirhams ($32.67 billion) of funding facilities to support banks since September.

The Saudi Arabian Monetary Agency (SAMA) slashed key interest rates on Monday, reducing its benchmark repurchase rate to 2 percent from 2.5 percent and its reverse repurchase rate to 0.75 percent from 1.5 percent.

"Domestic money market rates have positively responded to monetary stimulus and the recent global easing in interbank rates," Bankers in Riyadh and Dubai said, reading from a SAMA circular.

"The current market conditions warrant a further adjustment of policy rates which are currently misaligned. In view of this backdrop, SAMA has decided to lower the repo rate ... and the reverse repo rate effective immediately".

The bank said the rate cuts were designed to ensure that banks are able to extend cheap credit to meet "genuine" demand among customers.

"These measures should help to ensure that credit is available to genuine demand at lower rates," the SAMA added in its circular to banks.

Saudi Arabia's interbank rates fell on Monday after the kingdom's central bank cut key interest rates by as much as 75 basis points.

The three-month Saudi Interbank Offered Rate (SAIBOR) fell to 1.38375 percent at 15.52 (UAE time) from 1.845 percent before the rate cuts. (Reuters)

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