GCC central banks normally change their interest rates in lockstep with the US Fed as Gulf countries’ currencies are pegged to the dollar. Central banks in the GCC have increased their key interest rates after the US Federal Reserve (Fed) delivered its 11th rate hike, reinforcing its fight against high inflation.
The Fed signalled that borrowing costs will likely rise by another quarter percentage point after delivering the highest US central bank policy rate in 22 years. “The Committee will continue to assess additional information and its implications for monetary policy,” the US central bank’s Federal Open Market Committee said in a statement.
The midpoint of that target range would be the highest level for the benchmark rate since early 2001.
Monetary policy in the GCC
Meanwhile, GCC central banks normally change their interest rates in lockstep with the Fed as Gulf countries’ currencies – the UAE dirham, Qatari riyal, Saudi riyal, Omani rial and Bahraini dinar – are pegged to the dollar.
The Central Bank of the UAE (CBUAE) said it would raise the base rate on its overnight deposit facility by 25 basis points (bps) to 5.40 per cent, from 5.15 per cent, effective Thursday. “This decision was taken following the Fed’s announcement on July, 26th to increase the interest on reserve balances (IORB) by 25 bps,” the UAE central bank said in a statement.
The CBUAE maintained the rate applicable to borrowing short-term liquidity from the central through all standing credit facilities at 50 basis points above the base rate.
Saudi Central Bank (SAMA) raised the rate of repurchase agreement (Repo) by 25 bps to 6 per cent and the rate of reverse repurchase agreement (Reverse Repo) by 25 bps to 5.50 per cent while the Central Bank of Bahrain hiked the one-week deposit rate to 6.25 per cent and the overnight deposit rate to 6 per cent.
Similarly, Qatar Central Bank’s Monetary Policy Committee increased the deposit interest rate by 25 bps to 5.75 per cent, the lending interest rate to 6.25 per cent and the Repo rate to 6 per cent.
The Central Bank of Kuwait (CBK) also raised the discount rate by 25 bps from 4 per cent to 4.25 per cent as part of the apex lender’s broader strategy to maintain monetary and financial stability while fostering economic growth.