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With fears of the credit crisis worsening and the markets bleeding the world over, the coordinated move by major central banks to cut interest rates was anticipated and therefore welcomed.
The UAE, faced with a liquidity squeeze of its own, and with stocks in free fall, followed the US Federal Reserve and cut the repurchase rate by 50 basis points. It also lowered the lending rate to banks from five per cent to three per cent.
The markets' response on Wednesday and yesterday was on expected lines and most, including in the UAE, ended in positive territory. But the latest move is increasingly being seen as just a temporary measure and is not enough to stem the rot. After all, this move follows a series of bailouts and billions in cash injections into money markets, which were expected to restore confidence in the markets. But neither worked and the haemorrhaging continued unabated. Is it too late and too little? We will have to wait and see.
The fact of the matter is that as the credit crisis worsened, liquidity in banks simply dried up and inter-banking lending came to a standstill. With the latest interest cuts, the precarious situation is likely to improve a bit, but given the magnitude of the problem globally, it is perhaps just a drop in the ocean.
The banks, though, need to make a concerted effort to lend to each other and to businesses and consumers overcoming their fears now that the credit lines have been opened and at a good price.
But given the fragility of investor confidence that has been influenced by the global scenario — perhaps irrationally in the UAE given the solid fundamentals of the country and the robust performance of the companies — it is not the time to say whether it is going to work or not. But if this fails, then God save us from a global catastrophe.
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