Global Financial Crisis and the Response of UAE Central Bank
The global financial crisis was a vastly affecting economic event which spread like a plague over the economies of the world. Every economy of the world started planning ahead at the advent of crisis to ensure economic stability in their country. The crisis occurred after the downfall of oil prices which affected the Middle Eastern countries more adversely than others as a major amount of their revenue is generated from the oil industry sector. The central bank of UAE took charge of the situation and made changes in the lending rate and reduced it by 2% and also reduced the REPO rate by 1.5%. As initial measures to alleviate the problems of the UAE banks, the UAE central bank also took measures to increase the liquidity of the banks to sustain the economy. The GDP growth rate of UAE dropped from 9.8 to 3.2% due to the financial crisis and the objective of the actions taken by the central bank of UAE were to sustain the GDP growth rate of UAE (Trading Economic, 2015).
In 2009, some of the groundwork changes that were made by the central bank of UAE were to change to the capital adequacy ratio to 11% and planned to increase it at 12% after 6 months. As UAE was facing major consequences of the economic downturn by 2008, UAE central bank decided to buy bonds worth 10 billion from the emirate of Dubai. This step was to re-assure the investors in UAE that it is safe to invest in UAE. At this point of time, UAE was facing a slump in the real estate sector in which many ongoing projects were being affected and Dubai was at a relatively better state with a stock exchange that was advancing after a sharp fall (The New York Times, 2009).
In 2009, the central bank did not make interest rate changes and continued with the changes made in 2008 as those changes were made for sustainable growth of the economy to fend off the global financial crisis. (Interact, 2009)