Riyadh: Saudi Arabia slashed interest rates on Tuesday ahead of a US Federal Reserve policy announcement while the United Arab Emirates said it would not track Fed easing as the Gulf grapples with a global liquidity crunch.
In an apparent pre-emptive move, Saudi Arabian Monetary Agency (SAMA) reduced its benchmark repurchase rate by 50 basis points to 2.5%, the fourth time it has reduced the rate since the global financial crisis intensified in October.
The Fed is expected to cut rates by 50 basis points to 0.5% on Tuesday, according to a Reuters poll this month.
Most states in the oil-exporting Gulf peg their currencies to the US dollar and have tended to shadow American interest rate policy to maintain the relative value of their currencies.
But in the past few months, Gulf central banks have been cutting interest rates more than usual as they strive to defrost interbank markets and encourage private sector borrowing to keep their economies growing during the global financial turmoil.
On Tuesday, SAMA also cut its reverse repo rate to 1.5% from 2%.
SAMA said it had reduced rates “in line with recent monetary measures taken by SAMA to ensure adequate system liquidity to meet genuine domestic credit demand and in view of evolving global development”.
Gulf states are expected to expand public spending as they strive to keep multi-billion-dollar infrastructure projects on track amid an oil price slump. But hefty borrowing costs are discouraging private investors from taking part.