Most GCC central banks follow Fed lead, lower key interest rates

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Most central banks of the Gulf  Cooperation Council cut key interest rates on Wednesday, December 18, following the Federal Reserve’s decision to reduce US rates by a quarter of a percentage point.

The Federal Reserve on Wednesday lowered the federal funds target rate range by 25 basis points (bps) to between 4.25 per cent and 4.5 per cent. It also signalled it will slow the pace at which borrowing costs fall further, given a relatively stable unemployment rate and little recent improvement in inflation.

The Gulf’s oil and gas exporters generally follow the Fed’s lead on rate moves, as most regional currencies are pegged to the US dollar. Only the Kuwaiti dinar is pegged to a basket of currencies, including the dollar.

UAE, Saudi and other GCC states drop interest rates

Saudi Arabia, the region’s biggest economy, cut its repurchase agreement (repo) rate and reverse repo rate by 25 bps each to 5 per cent and 4.5 per cent, respectively.

The UAE also reduced its base rate on the overnight deposit facility by a quarter of a percentage point to 4.40 per cent.

Read: CBUAE drops interest rates by 25 basis points, reflects US Fed move

Most regional economies have been largely shielded from stubbornly high inflation elsewhere and have implemented ambitious economic diversification plans to boost non-oil growth.

In Qatar, the central bank cut its three main interest rates by a slightly deeper 30 bps, while Bahrain’s central bank stuck with a 25 bps reduction in its overnight deposit rate to 5 per cent.

In a separate statement released on Wednesday, the Central Bank of Kuwait said it “has adopted a gradual and balanced approach in adjusting the discount rate”, noting it had cut its discount rate by 25 basis points to 4 per cent as of September 19.