DUBAI: Most of the central banks of the Gulf region including the UAE, Saudi Arabia, Bahrain, Oman and Qatar raised their benchmark borrowing rates after the US Federal Reserve increased its key interest rate to tame inflation and maintain price stability. However, Kuwait’s Central Bank kept its discount rates unchanged. Most central banks in the six-member GCC bloc follow the Fed’s policy rate moves since their currencies are pegged to the US dollar, barring Kuwait which links its dinar to a basket of currencies.
The Fed bumped up the policy rate for a third consecutive time this year by 25 basis points (bps) as the labor market remains tight, the unemployment rate is at a multi-decade low and the central bank continues to try to bring inflation down to its target range of 2 per cent after prices hit a four-decade last year.
The Saudi Central Bank, better known as Sama, raised its repurchase agreement (repo) rate by a quarter point to 5.75 per cent and its reverse repo rate by a similar margin to 5.25 per cent. The kingdom’s inflation rate for 2022 was estimated at 2.6 per cent and, according to preliminary forecasts, has been forecast at 2.1 per cent in 2023, Saudi Finance Minister Mohammed Al-Jadaan said in December. Consumer prices in the kingdom rose 2.7 per cent year-on-year in March, the lowest rate of price growth since July 2022.
The UAE Central Bank raised its benchmark borrowing rate for the overnight deposit facility by a quarter of a percentage point to 5.15 per cent from 4.9 per cent, effective from Thursday. UAE banks remain adequately capitalized while the average loan-to-deposit ratio edged down to 86 per cent in December 2022, according to official estimates. The net foreign assets of commercial banks more than doubled to $104 billion at the end of 2022. IIF deposits and credit to the economy to grow by about 8 per cent in 2023.
The Central Bank of Oman (CBO) on Thursday increased its interest rate for local banks at the rate of 25 basis points to 5.75% in line with the decision of the US Federal Reserve. The Central Bank of Bahrain also increased its key rate on one-week deposits by 25 bps to 6 per cent. The Bahraini regulator raised its interest rate on overnight deposits by a quarter-point to 5.75 per cent, and by a similar margin on its four-week deposit rate, raising it to 6.75 per cent. The lending rate was also increased by a quarter of a percentage point to 7 per cent. The Central Bank of Qatar raised its repo rate by a quarter of a percentage point to 5.75 per cent. It also increased its deposit rate by a similar margin pushing it to 5.5 per cent and the lending rate by 25 bps to 6 per cent. — Agencies