The central bank cut its benchmark interest rate for the second time in less than two months yesterday after a similar cut by 25 basis points in early August, noting that the decision to cut interest rates applied to certificates of deposit took effect from yesterday.

Bankers and economists said the market needs to lower interest rates to stimulate them, and to stimulate customers, companies and entrepreneurs to borrow, as well as that the decline in interest rates would ease the burdens of existing and new financing, especially real estate and corporate loans, as they are linked The “Eibor” which deals with a package, whether up or down with the main interest rate.

They told Emirates Today that fixed-rate borrowers could negotiate with their banks to lower interest rates on their loans, or move to other banks at lower interest rates.

The second time

In detail, the central bank lowered its key interest rate for the second time in less than two months yesterday, following a similar cut in early August by 25 basis points.

As of yesterday, the CBE said it had cut interest rates on its certificates of deposit, in line with the drop in US dollar rates, following the Federal Reserve's decision to cut the federal funds rate by 25 basis points at its meeting yesterday. .

The central bank said in a statement yesterday that the repurchase rate, which applies to borrowing short-term liquidity from the bank by guaranteeing certificates of deposit, has been reduced by 25 basis points.

The certificates of deposit, issued by the Central Bank of banks operating in the country, are the instrument of monetary policy through which the effects of changing interest rates are transferred to the banking system in the country.

From the end of 2017 to August 2019, the UAE's key interest rates have seen successive increases, coinciding with every Fed hike, due to the dollar peg.

It is noteworthy that the first rate cut after nearly two years, came in early August.

Monetary policy

"There has been a near conflict between US President Donald Trump and the Federal Reserve for some time because of high interest rates at a time of global recession and a sluggish performance of global economic growth," said banking expert Amjad Nasr. A decision to cut them began last August, followed by a cut yesterday, while a third cut is expected before the end of the year.

Nasr pointed out that «raising or reducing interest is one of the important monetary policy tools used by central banks around the world to curb inflation, by raising them to withdraw large liquidity from the market, or reduced to stimulate borrowing and pumping funds in the market».

He pointed out that «the economic situation now requires a reduction in interest, which motivates customers to take financing, and move the real estate and behind the retail sector, and leave financial benefits in the hands of individuals, directed to consumption that creates jobs and an active economic cycle».

Nasr also said that “one of the advantages that accompany the reduction of interest is the directing of deposits to different investment channels, given the decline in the return on banks, which means more activation of the market.”

Declining funding

For his part, said banking expert, Mohannad Aouni, «The last two years saw a somewhat decline in the demand for financing, compared to previous years due to high interest, so it was important to reduce after a period of successive increases, so that businesses and individuals to take reasonable amounts "At a lower cost, that's what the market desperately needs at these times."

Awni predicted that the reduction will not stop at this rate, especially in light of the economists' demands for a further reduction before the end of this year, pointing out that «interest on current and old mortgage financing will decline because of the decline (EIBOR), and this will reduce the burden of debt». “Even fixed-rate borrowers can negotiate with their banks to lower interest rates on their loans or move to other banks at lower interest rates,” he said.

Stimulate

In the same context, said economist Mustafa Zahran, that «the business sector has experienced during the past period in the access to finance, in addition to the high interest rate, which reached 10%».

He added that «many employers preferred to wait for the expansion of their business, or start new business until the interest rates decline», adding that «the decision to reduce the incentive to employers to expand their business, and with more jobs and move the market».

Activity and momentum

In turn, the financial expert and tax agent, Mohamed Helmy, said that «the reduction of interest carries several advantages for the economy, and the movement of trade between the UAE on the one hand and destinations that deal with the dollar on the other hand, so it is expected that the market will see activity and momentum thanks to the expansion of borrowing ».

He added that «inflation levels are declining, and this situation needs to cut interest rates to stimulate the market». Helmy explained that «the reduction of interest rates provides the flexibility required to exploit the interest tool in the interest of economic growth, with the activity of the finance sector, especially low-profit projects», pointing out that «real estate sector will be the most beneficiary sectors of the interest rate cut».

Activate borrowing

The financial expert and tax agent, Mohamed Helmy that «the reduction of interest has a role in stimulating the economic process and the treatment of financial recession, through the activation of borrowing and reduce costs, where all sectors that need financing, especially industrial, production and real estate, in addition to supporting the purchasing power of individuals "With low cost of borrowing, it also has positive repercussions in increasing the state's VAT revenues."

Helmy added that «the process of reducing interest rates will reduce banks, but at the same time can be compensated by other sources, by increasing the volume of borrowing and the growth of returns from the movement of money with the activity associated with the cash operation».

Mohamed Helmy:

«Reduce prices

The interest provides flexibility

Required to exploit

Tool interest in

Economic growth".

Amjad Nasr:

One of the advantages is that

Accompany the cut

Interest, direct

Deposits to channels

Different investment ».

Muhannad Awni:

«Customers can

Borrowers interest

Fixed, negotiated

Their banks to cut

the benefits".