Overnight, the central bank cut its key interest rate by 25bp for the third month in a row. August, September and October saw a consecutive cut by the dollar peg, coinciding with a similar move by the US Federal Reserve.

In addition, two banking experts told Emirates Today that the new rate cut stimulates borrowing, improves the performance of the economy, contributes to the liquidity of banks and thus the entire market.

Third reduction

In detail, the Central Bank said in a statement last night that as of yesterday, Thursday, October 31, it had lowered the interest rates on its certificates of deposit for the third month in a row, in line with the drop in US dollar rates following the Federal Reserve's decision. The federal funds rate was cut 25 basis points at its meeting yesterday.

The repo rate, which applies to borrowing long-term liquidity from the central bank, has been cut by 25 basis points, the central bank said.

The Central Bank explained that the certificates of deposit issued by banks operating in the country is a tool of monetary policy through which the effects of changing interest rates are transferred to the banking system in the country.

Stimulate

"The decline in interest rates motivates banks to lend, drives investment and trade in the country, and reduces the accumulation of deposits in banks," said banking expert Sami Al-Awadhi.

He added that «the reduction comes at a time the market needs, and is at the level of the Gulf states linked to the dollar, so it is expected to help stimulate trade in general, and encourage individuals to borrow».

Activate sectors

For his part, said banking expert, Ahmed Yusuf, that «the policy of pegging the dirham to the dollar forces the movement of up and down with the decision of the US Federal Reserve on interest rates on the dollar, so naturally that the central bank cut them again for the third time in a row».

"This is positive for the economy, and helps to take loans, take advantage of low interest rates, and then activate the various sectors, including the real estate sector, which is relatively calm."

"Low interest rates will have a negative impact on bank profits, but increasing lending compensates for this difference, in addition to facilitating corporate and business loans, thus moving the entire market," he said.

From the beginning of August until the 30th of October

The third major interest rate cut of 25 basis points.