Most GCC central banks raise interest rates tracking
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Most GCC central banks raise interest rates tracking US Fed move

Most GCC central banks raise interest rates tracking US Fed move

Central banks in the GCC usually track the Fed’s policy rate moves as their currencies are pegged to the US dollar

Kudakwashe Muzoriwa
CBUAE - interest rate

Central banks in the GCC have increased key interest rates after the US Federal Reserve (Fed) delivered its 10th consecutive hike, albeit the smallest at 25 basis points (bps), reinforcing its fight against high inflation.

The rate increase sets what banks charge each other for overnight lending but feeds through to many consumer debt products such as mortgages, auto loans and credit cards.

However, the fed signalled that the increase may be the last for now, as policymakers have suggested that further moves may not be necessary.

Read: Gulf central banks raise interest rate based on US Federal Reserve hike

Interest rates high in GCC

Meanwhile, GCC central banks normally change their interest rates in lockstep with the Federal Reserve as Gulf states’ currencies – the UAE dirham, Qatari riyal, Saudi riyal 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 to 5.15 per cent, from 4.90 per cent, effective Thursday.

CBUAE maintained the rate applicable to borrowing short-term liquidity from the central bank through all standing credit facilities at 50 basis points above the base rate.

The base rate, which is anchored to the Fed’s interest on reserve balances (IORB), signals the general stance of the CBUAE’s monetary policy and provides an effective interest rate floor for overnight money market rates.

The Central Bank of Bahrain (CBB) hiked by 0.25 percentage points. CBB raised its one-week deposit rate to 6 per cent from 5.75 per cent, its overnight deposit rate to 5.75 per cent from 5.5 per cent, the four-week deposit rate to 6.75 per cent from 6.5 per cent and lending rates to 7 per cent from 6.75 per cent.

Saudi Arabia also increased its repo rate by 25 basis points to 5.75 per cent and its reverse repo rate by 25bps to 5.25 per cent. Saudi Central Bank ​said the move was consistent with its mandate to preserve monetary stability in the kingdom.

Similarly, Qatar Central Bank (QCB) said it increased its deposit, lending and repo rates by 25 basis points effective May 4. QCB hiked its deposit rate to 5.50 per cent, the lending rate to 6 per cent and the repo rate to 5.75 per cent.

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