The Central Bank of the UAE followed in the US Federal Reserve’s footsteps and cut the overnight deposit rate by 50 basis points, from 5.40% to 4.90%, it said in a statement yesterday. The CBUAE maintained the interest rate applicable to borrowing short-term liquidity at 50 basis points above the base rate.

REMEMBER- The UAE’s overnight deposit rate, or the base rate on overnight deposit facilities, is anchored to the US Federal Reserve’s interest rates as the AED is pegged to the USD.

This is welcome news for GCC countries, who have not needed interest rates as high as the US given inflation is “largely” at or below 2%, chief economist at Abu Dhabi Commercial Bank Monica Malik is quoted as saying by Bloomberg.

That’s especially the case due to the weakening oil outlook, which will “[increase] the funding requirement for some regional countries and for their investment programs,” Malik said. Oil prices are down almost 8% this month, with Brent Crude currently trading at USD 72 a barrel.

It will take some time for banks to digest the change: The impact of rate cuts on GCC economies “will be limited in 2024 with time for these to feed into bank lending rates, though should be supportive in 2025 especially as the more cuts take place,” Malik added.

But in the long run, it will give a boost to the region’s growing non-oil sectors: Monetary easing will further position the Middle East’s non-oil sector as the main driver of growth for GCC members — particularly those with currencies tied to the USD — by improving access to credit, according to a separate report (pdf) from PwC Middle East.

GROWTH FORECASTS-

The UAE’s non-oil sector is expected to grow at a 6% clip in 2024, Economy Minister Abdulla bin Touq Al Marri told CNBC Arabia (watch, runtime: 13:13). The UAE aims to boost the non-oil economy to 80% of national GDP by 2031, Al Marri added.

In Sharjah, the non-oil economy now makes up 96% of GDP, with annual growth ranging between 4-5% annually, according to Al Marri.

OVER IN THE GCC- Next year will see GCC growth doubling: Economic growth in the GCC is expected to more than double in 2025 to 4.4% on the back of strong domestic activity, with interest rate reductions expected to boost consumption and private investment, Wam reports, citing an Oxford Economics report.

It’s all about non-oil growth: The GCC’s non-oil sector is projected to grow by 4.2% in 2024 and 4.4% in 2025, with tourism, trade, and finance sectors driving growth. “The GCC's proactive and strategic investment in non-oil sectors, alongside the gradual recovery of oil production, is paving the way for robust growth in 2025,” ICAEW said.

REMEMBER- The International Monetary Fund (IMF) recently revised upward its 2024 growth forecast for the UAE to 4%, with Fitch Solutions seeing the non-oil private sector slowing to 5% growth this year, and World Bank projecting an even slower 3.2% growth.

Read more about the Fed’s decision in today’s Planet Finance, below.

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