By Stanley Carvalho
Gulf state leaves its repo rate at 1.5%, first time it has not followed in US footsteps.
The UAE, which pegs its currency to the dollar, has decided not to match a US interest rate cut, marking the first time the Gulf state has not followed a Fed move.
The UAE central bank left its overnight repurchase rate at 1.5 percent, central bank sources said.
The repo is the UAE benchmark and sets the rate at which banks borrow funds from the central bank.
"We think cuts are not having the impact on local money markets and it is not meaningful at this point to cut," said one central bank official.
The US Federal Reserve lowered interest rates by 50 basis points on Wednesday, part of a barrage of measures deployed around the world to fight a deep economic slowdown.
The UAE last lowered the repo to 1.5 percent on Oct. 8, following a similar cut by a slew of Western banks, including the Fed.
Meanwhile, Bahrain slashed its repurchase and overnight rates by a massive 125 basis points on Thursday as it tracked a more modest move by the US Federal Reserve.
The Gulf Arab state lowered its one-week deposit rate to 1.5 percent from 1.75 percent and cut its overnight deposit rate to 1 percent from 1.25 percent.
This is the first step towards re-establishing a monetary system whereby money has some contact with, and is no longer disjoined from, the real economy.
Finally some logical thinking in this aspect. It would anyway have not made any sense because currently most banks don't lend at anything below 8%. Even if they did follow the FED, would have had little impact. With the current liquidity squeeze, the rate should actually be increased if they want to get out of it quicky.