Hossam Abdelnaby (Abu Dhabi)
Financial experts confirmed that the decision of the UAE Central Bank to fix the interest rate carries special importance for the national economy, as it gave a kind of reassurance to individuals and companies in the Emirates who have loans or real estate loans linked to variable interest rates, regarding the stability of their monthly installments, and not burdening them with additional burdens. If it has been decided to raise bank interest.
The Central Bank of the United Arab Emirates decided to maintain the “base rate” on overnight deposit facilities at 5.40%, following the Federal Reserve’s announcement to keep the interest rate on reserve balances unchanged at its last meeting.
The Central Bank also decided to maintain the rate applicable to borrowing short-term liquidity from the Central Bank through all existing credit facilities at 50 basis points above the base rate.
Consumers and businesses
Vijay Valesha, Chief Investment Officer at Century Financial, confirmed that the UAE Central Bank’s decision carries special importance for the UAE economy. Given the UAE dirham’s peg to the dollar, interest rates in the UAE are expected to stabilize during the coming period, especially since expectations indicate that the current year will witness at least one reduction in interest rates.
He said that this decision represents good news for consumers and companies in the Emirates who have loans or real estate loans linked to variable interest rates, as they can now be assured of the stability of their monthly installments. It is likely that an official statement will be issued by the Central Bank of the United Arab Emirates in the coming days, confirming compatibility with the policy. The US Federal Reserve, where the base interest rate currently applied to overnight deposit facilities in the UAE is 5.40%.
Valecia pointed out that the “wait and watch” approach adopted by the Federal Reserve shows its focus on closely monitoring inflation data, and in the event of a rise in inflationary pressures in the coming months, the central bank will adjust interest rates accordingly.
End of the third quarter
Mahmoud Al-Qudsi, chief market analyst at ADSS, believes that the US Federal Reserve’s decision to fix interest rates for the sixth time since the start of the monetary policy tightening cycle in March 2022 shows that the US Federal Reserve is still searching for confidence that inflation will soon be under control, stressing That inflation fell far from the 2% target last March shows that the Fed’s plan is to keep interest rates high for a longer period, until these signs become clearer.
He explained that the possibility of raising the interest rate this year was previously a far-fetched idea, but it is beginning to appear. Given the disappointment with the recent inflation data, which contradicts previous expectations of a cut in interest rates of up to 150 basis points from the end of the first quarter. He said that, despite this, the prevailing market sentiment remains that the Federal Reserve may begin lowering interest rates by the end of the third quarter, noting that the US dollar stabilized with gold giving up some of its gains for the month, as the main US indices corrected a decline, ending a series of declines. The gains continued for several months.
contentment
Muhammad Shaker, a financial expert, stated that the decision of the Central Bank of the United Arab Emirates to maintain the “base rate” on overnight deposit facilities at 5.40%, came after the Federal Reserve announced that it would keep the interest rate on reserve balances unchanged at its last meeting, and this would This means that interest rates in the Emirates will stabilize for a period, which will make companies operating in the Emirates that have financing or real estate loans linked to variable interest rates reassured that their monthly installments will be stable and that the burdens imposed on them will not increase if it is decided to raise the interest rate.
Shaker explained that members of the Federal Open Market Committee (FOMC) meet eight times every year to determine the short-term interest rate, which contains signals regarding the outcome of the meetings in the future.
Reduction race
For her part, Charu Chanana, head of foreign exchange strategies at Saxo Bank, said that with the markets not expecting the US Federal Reserve to cut interest rates until the second half of 2024, the focus is shifting to the response of other central banks.
She explained this by saying that the European Central Bank, in particular, is facing pressure to reduce interest rates to avoid a severe recession, expecting that the race to reduce interest rates will dominate the movements of foreign exchange markets during the second quarter of this year. Chanana explained that there are investment opportunities in currency pairs. For example, the euro has witnessed a decline in speculation, but the stability of economic conditions in the euro zone may support its gradual rise, especially with the possibility of lowering interest rates by the European Central Bank.
Chanana stated that future moves are still inclined towards lowering interest rates, despite the postponement of the cut and the raising of expectations.
Potential rise
Razan Hilal, a market analysis expert at Stonex, said that the recent statements of Federal Reserve Chairman Jerome Powell reflected a cautious stance regarding the potential rise in interest rates, as Powell highlighted the central bank’s measures related to monetary policy, which sparked responses. Action and discussions among investors around the world, especially in the Gulf Cooperation Council countries, noting that the reaction to Powell’s statements was positive, and a number of major indicators witnessed a noticeable increase, as this is in line with the interests of the Gulf markets and their ability to borrow, while implementing its strategies to diversify. Their economies.
Hilal stressed that, in light of the ongoing inflation, and the Federal Reserve’s notable warning regarding reducing interest rates, there is no clarity about the possibility of maintaining the upward wave in the stock market for the year 2024.
She added that the dollar index is currently close to reaching its annual peak, and is thus close to its peak in October 2023, which indicates that the decision will try to maintain an interest rate of no less than 5.5%.
Conclusive evidence
Mohamed Hashad, chief market strategist at Noor Capital, believes that inflation in the United States is still far from the target rate of 2%, and the labor market is still strong, but the Federal Reserve wants a more stable labor market than it is now, and so the Federal Reserve was more Be careful in this meeting than the previous one.
He said that the Federal Reserve decided to reduce the monthly maximum limit for US Treasury bond sales to $25 billion instead of $60 billion per month, and this reduction is reflected in the form of a decline in the annual rate of reducing the bank’s holdings to $300 billion compared to $720 billion since June 2022, stressing that The Federal Reserve needs more conclusive evidence of declining inflation before it begins cutting interest rates.
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