How Gulf stock markets reacted to the rate hike

THE LAST THREE FED RATE HIKES

dubai — The Central Bank of the UAE on Thursday joined its peers in Saudi Arabia, Kuwait, Bahrain and Qatar to raise benchmark interest rates within hours of the US Federal Reserves’s decision to increase US rates by a quarter point to 0.75 per cent, a move that analysts say may hamper efforts to boost economic growth.

The UAE central bank raised interest rates applied to its certificates of deposits, which are the monetary policy instrument through which changes in interest rates are transmitted to the UAE banking system.

The strengthening dollar makes the UAE dirham and other Gulf currencies, which are pegged to it, stronger. This, in turn, will further make the tourism, retail and real estate industries more expensive to traditional customers from Europe, India and Russia, financial experts said.

Vineet Kumar Dudeja, chief executive for GCC operations at Bank of Baroda, said following the rate hike, dollar Libor (a benchmark rate that some of the world’s leading banks charge each other for shortterm loans) across maturity has already gone up in anticipation.

“Since the dirham is pegged to the dollar, the Eibor (Emirates Interbank Offered Rate) has also moved upward over the period more or less in tandem.”

Dudeja said the move has increased the cost of borrowing in the UAE interbank market. “Thus bidding for UAE central bank CDs will be on higher rate. A decision on the 2% 1% June 2006: (at the time was 17th-straight increase) December 2015: December 2016: DUBAI — Most major Middle Eastern stock markets fell on Thursday after the US central bank raised interest rates but buying by local retail investors lifted Saudi Arabia.

In Dubai, the index slid 0.8 per cent to 3,554 points. Heavyweight Emaar Properties dropped 2.2 per cent and its retail affiliate Emaar Malls Group tumbled 4.4 per cent. Qatar’s index lost 1.3 per cent.

Saudi Arabia outperformed, rising 0.4 per cent, although trading volume shrank further to a moderate level and many banks and petrochemicals favoured by institutional investors were sluggish.

Egypt’s index was almost flat as Orascom Telecom, the most heavily-traded share, rebounded four per cent. — Repo rate will depend on macroeconomic factors of the UAE, including oil price’s expected movement in addition to further US rate hikes,” said Dudeja. Analysts said because of an increase in US interest rates at a time when the Reserve Bank of India has embarked on cutting interest rates, there is a high chance that rupee will depreciate. > TURN TO PAGE 26

A decision on the Repo rate will depend on macroeconomic factors of the UAE, including oil

CEO for GCC operations at Bank of Baroda

Firmer interest rates... are likely to be further headwinds to regional growth in 2017

Tim Fox, Head of research and chief economist at Emirates NBD

[Rate hikes are] something that will affect the region

Monica Malik, Chief economist at Abu Dhabi Commercial Bank