Fed Cut: Key GCC Implications

Interbank deposit rates in the Gulf have eased slightly after central banks followed the US Fed's 50bps rate cut this week, but we think the liquidity crisis has further to run, and negative interest rate differentials over the US dollar look set to remain a thing of the past. As the chart shows, Kuwaiti 3-month forward points have moved sharply to the right, and are now trading at 350, implying a significant risk premium attached to local currency loans. This is also the case for the other GCC states. These trends are, of course, in line with the global deleveraging

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