The United Arab Emirates central bank on Monday cut key lending rate, as the economy struggled to boost growth rate squeezed by fallout from the global financial meltdown. The central bank cut the repo rate to 1 percent from 1.5 percent, as a growing number of property developers in the sheikdom of Dubai are announcing layoffs and project delays that have sparked questions about the sustainability of the city-state's much-heralded economic boom. With the current “slowdown of the world economy, and the fall in inflationary pressures, a rate cut at this juncture will support domestic economic activity and foster business confidence,” UAE Central Bank Chairman Khalil Mohammed Sharif Foulathi said in a statement posted on the bank's Website. The move is aimed at private sector's access to funds at a time when the global economic crunch has severely tightened the credit market. While rate cut in the Gulf region often mirror those of the US Federal Reserve, the UAE's proactive measures Monday underscored the difficulties confronting the private sector in the country. “The concern is that as the private sector is beginning to show signs of a slowdown, and inflation is clearly on the downward trend,” John Sfakianakis, chief economist with the Saudi British Bank, said in a telephone interview from Riyadh. Gulf Arab states _ most of which link their currencies to the US dollar - have enacted a range of measures to soften the effect of the current global meltdown. But their efforts were undermined by tighter credit markets and the withdrawal of foreign investors from many of their stock markets. This has left the private sector struggling to raise cash for some of the high-profile, multibillion dollar projects that are transforming the region. The stubborn collapse in oil prices, despite Organization of Petroleum Exporting Countries output cuts of 4.2 million barrels per day since last September, has also strained these nations. As project delays and layoffs have been announced, analysts have downgraded their economic growth estimates for the region. Sfakianakis projects the UAE's real gross domestic product growth will be just 0.9 percent in 2009, down from an expected 6.6 percent in 2008. The Gulf nations, said Sfakianakis, are “witnessing a slowdown, and that has to be addressed by bringing down the cost of borrowing.” Both central banks said the cuts should help boost private sector lending. The UAE Central Bank said that the “lower cost of funds will ultimately reduce customer loans' interest rates, and would further enhance sustained development projects.”
