DUBAI (Reuters) - Saudi Arabia and the United Arab Emirates, the Gulf’s two largest economies, cut key interest rates by 50 basis points on Tuesday, tracking an emergency move taken by the U.S. Federal Reserve to soften the impact of the coronavirus outbreak.
The currencies of Saudi Arabia and the UAE are pegged to the dollar so those countries - as well as others in the Gulf - tend to follow the Fed’s policy decisions almost unfailingly.
But the cuts come at a crucial time for the Gulf economies, where wealth is still tightly linked to oil prices - hit hard by the virus outbreak - and where crucial economic diversification efforts risk losing momentum.
They could provide stimulus to a struggling non-oil private sector, which both in Saudi Arabia and the UAE has started to feel the impact of the coronavirus on exports and tourism.
The Fed’s easing was its first emergency cut since 2008 at the height of the financial crisis.
The UAE central bank said that, effective on March 4, it was cutting interest rates on certificates of deposit and its repo rate for borrowing short-term liquidity by 50 bps.
The Saudi Arabian Monetary Authority said that, “in light of global developments”, it was cutting its repo rate, used to lend money to banks, by 50 bps to 1.75% and its reverse repo rate, at which commercial banks deposit money with the central bank, by 50 bps to 1.25%.
With 90,000 cases and more than 3,000 deaths worldwide in 77 countries and territories, the virus outbreak has disrupted global supply chains, triggered cancellations of major public events and weighed on global markets on fears it could cause a recession.
Reporting by Davide Barbuscia, Saeed Azhar and Yousef Saba, Editing by William Maclean and John Stonestreet