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Bahrain, Saudi, UAE raise interest rates, Kuwait unchanged

Bahrain, Saudi, UAE raise interest rates, Kuwait unchanged

Bahrain, Saudi and the emirates peg their currencies to the US dollar

The central bank’s of Bahrain, Saudi Arabia and the UAE raised interest rates on Wednesday in response to a US rate hike.

The US Federal Reserve Board said on the same day it would increase the federal funds rate by 25 basis points.

In response Bahrain said it increased interest on its one-week deposit facility from 2.25 per cent to 2.50 per cent.

Interest on its overnight deposit rate was increased from 2 per cent to 2.25 per cent, its one-month deposit rate from 3 per cent to 3.25 per cent and its lending rate from 4 per cent to 4.25 per cent.

Saudi Arabia’s central bank said it was raising its reverse repo and repo rate by 25 basis points to 2.25 per cent and 2.75 per cent respectively.

The UAE central bank also announced it would raise its repo rate against certificates of deposits by 25 basis points.

“The move will increase borrowing costs, and likely improve banks’ profitability, marking further improvement for the sector this year after the robust performance of 2017,” said KPMG Lower Gulf partner and head of audit Emilio Pera.

“The hope remains that the broader industry will absorb the higher costs buoyed by the oil price recovery and given the strong performance of loans and deposits growth in August. However, with three interest rate increases already announced this year, we should closely monitor any signs of stress in case of a tick up in impairments during Q3 and Q4.”

All three countries peg their currency to the US dollar and generally follow US monetary policy.

Kuwait, which pegs its dinar against an undisclosed basket of currencies including the dollar, said it would be keeping its discount rate unchanged at 3 per cent.

This followed a similar decision after the last US rate hike three months ago.

Read: Saudi, UAE, Bahrain raise interest rates, Kuwait unchanged

The governor of the country’s central bank, Mohammad al-Hashel, said the country would use other policy tools to manage its economy such as issuing bonds and Islamic instruments or accepting deposits from local banks, according to Reuters.

He said domestic bank credit in the country had seen only modest expansion due to limited growth in the non-oil sector.

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