Dubai, Oct 9 (IANS) As stock markets in the Gulf took a nearly weeklong battering in the face of the global credit crunch, the United Arab Emirates (UAE) Central Bank cut the lending rates to banks from five to three percent.The bank also slashed its repo rate from two to one percent with effect from Wednesday, the official Emirates News Agency (WAM) reported.

UAE Central Bank chairman Khalil Mohammed Sherif Folathi said the move was in line with the new level of interest rate on the US dollar federal funds.

He, however, stressed that the banking sector in the country was strong and the capital reserve had reached 13 percent, much above the eight percent level approved in the Basel Convention.

He also added that the total mortgage lending by the banks in UAE did not exceed 11 percent of the total deposits, which was below the 20 percent level approved by the law.

The UAE Central Bank’s move late Wednesday evening came following a similar move by its Kuwaiti counterpart earlier in the day.

The Central Bank of Kuwait cut interest rates by 125 basis points in the face of deteriorating state of the local financial market caused by the global financial crisis.

The benchmark discount rate was down to 4.5 percent from 5.75 percent and the repo rate fell to 2.5 percent from 3.5 percent.