[ad_1]
DUBAI: The Federal Reserve is on track for a second rate hike in 2023, with another 0.25% hike, which will soon be reflected in lending rates in the UAE and other Gulf markets. It was the ninth Fed rate hike since March 2022 as the global economy tries to slow inflationary growth.
Until about 48 hours ago, some thought the Fed would avoid a rate hike this month as the global banking sector has undergone a restructuring following Silicon Valley Bank’s troubles and the ensuing turmoil at Credit Suisse. But aggressive intervention by UBS, another Swiss bank that bought Credit Suisse last Sunday (March 19), and coordinated action by central banks, managed to stem further alarm.
Qatar became the first Gulf economy to match the U.S. rate hike – raising the key lending rate to 5.5%. Bahrain joins, and from tomorrow the key rate will be 5.75%.
The central bank of Saudi Arabia also opted to raise interest rates, raising the lending rate to 5.5%.
there are more
The Fed has repeated what it has said after each of the past 8 rate hikes – more hikes are on the way if US inflation is to be beaten back.
For UAE businesses, the latest rate hike means paying extra attention to their spending in the coming months – and continuing to wait for the Fed to stop raising rates further. Just as important, they need to know when the Fed will start cutting rates. (These actions would then be repeated by the UAE Central Bank and its Gulf counterparts.)
Depending on the individual bank’s strategy, lower or more competitive options may be offered – with this in mind, advice to UAE businesses is to shop around
– Kareem Refay of LIBF MENA
keep cutting costs
Some businesses here have already taken pre-emptive action on cost containment, including freezing new staff and, in some cases, even laying off staff. Some banks have already started the process despite record profit figures for 2022, market sources said.
“UAE banks are taking proactive steps to de-risk sectors such as trade and some SMEs,” said a financial services source. “While a slowdown in the non-oil sector may reduce credit demand, banks are taking a more cautious approach to capital spending.
“They are also digitizing some roles to eliminate redundancies and reduce expenses. With a global cyclical recession becoming more likely, banks are stepping up cost cutting and rationalization to improve efficiency.”
UAE banks’ first-quarter results, due from late April, will provide some information on credit offtake and loan demand.
The Fed’s struggle to curb stubbornly high inflation without stressing the banking system and causing financial instability has been dubbed a “big decision.” We don’t think there’s a major rally decision here.If they do more than 25 bps, it could trigger more instability and doing nothing would be seen as reckless
-Nigel Green, deVere Group
UAE businesses need to revisit funding
Whether or not a full-blown global recession looms, businesses in the UAE will need to find ways to conserve cash — or seek alternative financing to meet their needs. “The interest rate, repayment period and other terms and conditions of the loan must be considered before making a decision,” said Bal Krishen Rathore, chairman and chief executive of Dubai-based Century Financial.
“The UAE is a center of trade and finance, and the region will also feel the impact of the slowdown in the West. The benchmark for freight in 40-foot containers from Shanghai to New York has fallen from a high of $12,000 in mid-2021 to $10,000 in March 2023.” $1,900, down 85% from its peak.
“As a global trading hub, UAE businesses can foresee the impact of slowing demand and prompt them to reduce variable spending to prepare for a rainy day.”
golden power returns
Gold jumped $30 to $1,973 an ounce immediately after the Fed’s announcement. Expectations that gold may remain subdued for the time being, at least, as markets factor in fresh rate hikes. but it is not the truth.
Gold briefly topped $2,000 an ounce as the Credit Suisse saga boiled over.
U.S. markets were in the green after the announcement. But will the crisis in the global banking sector subside long enough?
“Shop around”
Banks in the UAE remain interested in providing financing to customers who meet all the criteria. Of course, interest rates have not reached their peak this cycle, but “refinancing is an option for companies to fund their balance sheets and ongoing operations,” said Kareem Refaay, managing director of LIBF MENA.
But with the current high interest rate scenario, only refinance when “absolutely necessary for your ongoing operations and cash flow needs,” Refaay added.
“Businesses are demanding more cost-effective funding and lending options from banks. To meet these demands, banks must be proactive in finding different and innovative solutions for corporate clients to support them in meeting the challenges of rising interest rates.”
Recent developments (in the U.S. banking sector) could lead to tighter credit conditions for households and businesses and weigh on economic activity, hiring, and inflation.The magnitude of these effects is uncertain
– Fed statement after new rate hike
[ad_2]
Source link