GCC cuts interest rates as dollar-pegged economies track Fed policy

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Gulf central banks cut key interest rates by 25 basis points on Wednesday, mirroring a move by the US Federal Reserve to reduce rates by a quarter of a percentage point in another divided vote.

The Fed signalled it will likely pause further reductions in borrowing costs with new projections indicating the median policymaker view of just one quarter-percentage-point cut in 2026, the same outlook as in September.

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

Saudi Arabia, the region’s biggest economy, cut its repurchase agreement (repo) rate by 25 bps to 4.25 per cent and its reverse repo rate to 3.75 per cent. The United Arab Emirates’ central bank reduced the base rate applied to its overnight deposit facility to 3.65 per cent, effective Thursday.

Gulf economies are all at varying stages of diversifying their economies away from hydrocarbons and develop non-oil sectors like real estate, tourism and manufacturing, which require billions in financing and investment.

Lower rates are expected to stimulate economic activity and bolster non-oil growth.

The central banks of Qatar, Bahrain, Kuwait and Oman also reduced key rates by 25 basis points.