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UAE to maintain low interest rates.

Abu Dhabi: The monetary policy in the UAE will be geared to maintaining low interest rates to ensure positive economic growth in the next few years, UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi said on Thursday.

"The credit and banking policy will emphasise a reasonable but low rate of credit expansion and restricted banking expansion," Al Suwaidi told a gathering of bankers here.

He said the global financial crisis will reduce the prospects for UAE economic growth from "high single digit to low single digit growth in 2009 and 2010."

Al Suwaidi said the UAE Central Bank is working with the Ministry of Fin-ance "to put a scheme in place to reduce the interest rate of corporate-to-bank deposits by breaking the vicious circle and rigidity that have developed as a result of the liquidity crisis.

"We believe, the scheme that we intend to put in place soon, for corporate-to-bank deposits will also influence the interbank rate and will eventually bring it down," said Al Suwaidi. He said liquidity of the banks in the UAE is "stable now" as no bank is overdrawing its current account beyond its reserve requirements and corporate-to-bank deposits are also high.

"Interbank interest rates have come down, but still relatively higher than in some GCC countries," Al Suwaidi noted.

He said at the moment the UAE banking system is "localising liabilities of banks, that is getting rid of foreign interbank deposits, also it is repaying syndicated loans, medium-term notes (MTNs) and European Commercial Papers (ECPs), to reduce the risk of non-renewal of such liabilities at the wrong time."

As well, he said inflation is falling in every GCC country as a result of the economic slowdown - from double digits to about 5 per cent. In the UAE, he said, "Inflation is influenced by the rent rates which will take time to go down."

Al Suwaidi said the banks' consolidated balance sheet for January 2009 showed a slight increase in loans and advances over the figure of last December, "which means the banks are still lending to different businesses, even though the rate of lending stayed at a single digit."

On the other hand, he said loans and advances on gross basis remained greater than customer deposits by about Dh116 billion on January 31, a gap which is bridged through Bank Capitals and Reserves amounting approximately to Dh180 billion.

"We believe this situation is not appropriate and we are working now on bridging this gap," Al Suwaidi added.

Turning to real estate loans, Al Suwaidi said some adjustments will take place in the real estate sector, but that will depend on levels of rent rates, which are expected to come down gradually.

He noted that real estate prices, however, went down slightly due to psychological reasons driven by sellers' and buyers' expectations besides non-availability of bank loans sometimes.

Commenting on the Central Bank's latest plans and initiatives, Sanjay Uppal, Emirates NBD Group Chief Financial Officer told Gulf News: "The overall message from the governor of the UAE Central Bank is that there will be availability of greater liquidity and lowering of the interest rate of corporate-to-bank deposits, which are moves in the right direction and consistent with the ambition of the UAE to become a key player in the global economic marketplace."

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Publication:Gulf News (United Arab Emirates)
Date:Feb 20, 2009
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