RIYADH: Saudi Arabia’s central bank raised its key interest rates on Wednesday following a hike by the Federal Reserve as the US agency continued its battle to contain inflation.
Saudi Central Bank, also known as SAMA, matched the Fed’s increase of three-quarters of a percent.
“SAMA has decided to raise the rate of Repurchase Agreement by 75 basis points to 3.75 percent, and the rate of Reverse Repurchase Agreement by 75 basis points to 3.25 percent,” the bank said in a statement on Wednesday evening, citing an objective of maintaining monetary and financial stability.
A Repurchase Agreement, also known as the Repo Rate, is the cost imposed on commercial banks upon borrowing from the central bank.
Therefore, a higher Repo Rate results in commercial banks borrowing less from the central bank, which in return decreases money supply and curbs inflation.
In contrast, a Reverse Repurchase Agreement, or the reverse repo rate, is the price at which commercial banks lend out money to central banks. As this rate increases, commercial banks make more money off of loans to the central bank.
The Central Bank of the UAE said it was hiking its base rate by three quarters of a percentage point as well to 3.15 percent effective from Thursday moving in parallel with the Fed’s third straight hike of that size.
The bank said it would maintain the rate on borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the base rate.
Bahrain’s central bank also raised interest rates by 75 basis points after the Fed's decision yesterday, while Qatar’s central bank has announced that the same action will be taken today.
Qatar central bank’s new rates will be 4.5 percent for the lending rate, 3.75 percent for the deposit rate, and 4.0 percent for the repurchase rate, also known as repo rate.
As the Gulf Cooperation Council countries — apart from Kuwait — are pegged to the US dollar, they are compelled to match the Federal Reserve's rise in interest rates.
However, Kuwait— which is pegged to a basket of different currencies— exercised more liberty in its decision towards raising key interest rates. The Central Bank increased its key discount rates by only 25 basis points to 3 percent.
Oman is expected to follow in the footsteps of its neighboring countries soon.
Interest rates and inflation have been a hot topic ever since the effects of the pandemic on the economy, which were then amplified by higher oil prices and supply chain disruptions caused by the war in Ukraine.
Seeing as the world has been experiencing staggeringly high prices, news about both indices — which counter one another — has been flooding markets everywhere.
— With input from Reuters
