Low rates to have positive impact

The US Federal Reserve's decision to keep interest rates steady at a low level of two per cent and indications that this will continue until 2009 would have positive impact on the regional and global economy and may lead to upward trends in markets, according to analysts.

Hani Seif, investment manager at Damac Invest, said the stability in interest rates would help stabilise the world economy in the short term.

"However, prices of commodities increased after the decision. Prices of gold and precious metals increased. Oil prices are projected to increase. The value of the dollar against international currencies will remain at the current levels," Seif said.

He said the low interest rates would push investors to search for alternative investments and support the world economy. "However, this may have a risk of overbidding and overvalue of basic commodities due to the increase in liquidity in some markets. For local markets, interest rates of UAE banks for retail consumers are expected to remain at the current levels despite they are at higher levels," Seif added.

Saket Al Jundi, a risk management expert, said Fed's decision would help reduce increasing speculations and ensure stability in the world economy on the short to medium term.

"There are growing fears of inflation and slowdown in the world economy in the long term and keeping interest rates on low levels will push investors to search for new channels of investments and create new economic cycle. This trend will create new jobs and reduce the impact of inflation," he said.

"Following the decision, international capital markets had an upward trend. We expect this trend will remain in the short-term and will have positive impact on GCC stock markets," Al Jundi said.