Gulf central banks chop interest rates in tandem after Fed cut

The U.S. Federal Reserve’s decision to cut interest rates set off a chain reaction of parallel reductions in the Middle East.

Central banks in Saudi Arabia, the UAE, Bahrain and Oman, which have currencies pegged to the U.S. dollar, chopped their own borrowing rates today by 0.25% in tandem with the Fed, Reuters reports. Qatar cut its three main interest rates by 0.30%.

The Fed’s action on Wednesday produced a sour reaction, however, on Gulf stock exchanges, which dropped in morning trading with other global markets as traders absorbed the message from Federal Reserve Chairman Jerome Power that rates cuts will be slower in 2025.

Benchmark indexes lost ground in Riyadh, Dubai and Abu Dhabi. Qatar’s market was closed for the country’s National Day.

Dubai’s stock market surges to highest in close to a decade

Dubai’s benchmark stock index soared today to its highest in nearly 10 years amid expectations that the U.S. Federal Reserve will cut interest rates this week.

The Dubai Financial Market’s General Index jumped 3.7% in morning trading to reach 5,010, led by Emirates NBD, Dubai’s largest bank, which rose 8%. The Fed’s decisions affect monetary policy in the Gulf, where the UAE dirham and other currencies are pegged to the U.S. dollar.

The stock surge comes as the UAE has embarked on a borrowing binge that promises to extend well into 2025, Bloomberg reports.

Emirati companies and sovereign entities in the UAE issued $38.4 billion of dollar debt this year, a 54% increase from 2023, according to the news agency.

In Abu Dhabi, ADNOC’s new XRG investment firm announced today that it has completed the formation of its joint venture with BP on an international natural gas platform called Arcius Energy. The JV, which will initially operate in Egypt, is 51% owned by BP and 49% by XRG.

Rate cut timing top of mind as financial elite gather from Dubai to Beverly Hills

From Dubai to Beverly Hills, the question occupying the world’s financial elite is this: when will the U.S. Federal Reserve cut interest rates?

Not till September at the earliest, says hedge fund manager Ken Griffin, CEO of Citadel, who addressed the Milken Institute Annual Conference at The Beverly Hilton on Monday. Yie-Hsin Hung, CEO of State Street Global Advisors, sees rate cuts happening sooner: she predicted that the Fed will start to reduce rates as soon as July amid a more muted economy, speaking this morning at Day 2 of the Dubai FinTech Summit. 

The market-moving question is top of mind, but so too is the Gulf’s growth story amid the energy transition. “We’re known as oil exporters, but our second biggest export is capital,” Mohammed El-Kuwaiz, Chair of the Board of the Capital Market Authority of Saudi Arabia said at Milken on Monday, fielding questions from The Economist’s Editor-in-Chief Zanny Minton Beddoes. 

“For the first time in our history we may be capital importers,” El-Kuwaiz predicted, as the kingdom looks to lure foreign capital to help fuel the $3 trillion of investment from now until 2030 for its economic diversification drive.

The money is being poured into developing sectors like tourism, manufacturing and tech alongside mega-projects like NEOM.

“The capital markets are an extremely important fulcrum” at this time and why Saudi has opened up to the world and cracked into the top 10 capital markets, he said. El-Kuwaiz shared the stage with Jane Fraser, CEO of Citigroup; Harvey Schwartz, CEO of Carlyle; and Ron O’Hanley, Chair and CEO of State Street.

Back in Dubai, non-oil growth was top of the agenda for UAE Minister of Economy Abdulla bin Touq Al Marri. Speaking at the Dubai Fintech Summit, he repeated his belief in 7% annual GDP growth, but said that 4.9% non-oil growth is possible in 2024.

“We see growth away from traditional economies such as real estate and tourism to new types of tourism, such as sustainable tourism, health tech. We’re looking into AI, generative AI, the UAE is becoming the capital of AI,” he said.