Tuesday, November 04, 2008

UAE central bank does the unexpected

Khaleej Times:
The UAE central bank surprised markets last week by not reducing interest rates following the 50 basis points reduction by the US Federal Reserve.
In a research note “The United Arab Emirates: An Unexpected Decision,” Morgan Stanley commented that the decision not to lower rates may have been partly based on several factors.These include concerns over potential excess liquidity, reversal of speculative pressures on the dirham in forward markets and continuing concerns about inflation.
The report also questioned the need for any monetary tightening, “It is not clear why additional monetary tightening would be needed to combat inflation considering that: (i) rental pressures are expected to stabilise over the next two years; (ii) international food prices have started to decline; (iii) the US dollar has appreciated significantly over the past 3 months; and (iv) credit growth is expected to slow down substantially over the coming year as the banks’ access to foreign funding is reduced.”
Other reports:
- The National
- Emirates Business 24|7

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Anonymous nowwetoast said...

That was SO the right thing to do as the CB won't have to worry about fighting the currency speculators for quite some time now. No one will want dirhams (as opposed to Dollars) for quite some time.

How will keeping the rate unchanged fight inflation, I have no idea what those experts are talking about as it seems inflation is under pressure anyway, and bank lending rates have kind of decouple from central bank rates all over the world.

11:07 AM  

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