Saudi, Gulf central banks raise key interest rates by 25bps, mirroring Fed

RIYADH: The Saudi central bank, known as SAMA, increased key rates by 25 basis points on Wednesday, it said in a statement, following the Federal Reserve’s move to raise US interest rates by a quarter of a percentage point.
The repo rate was increased to 6 percent and the reverse repo rate was raised to 5.5 percent, the central bank statement said.
Most Gulf central banks also increased their key interest rates on Wednesday after the Federal Reserve’s decision, citing still-elevated inflation as a rationale for the latest hike.
The Fed raised its rate by 25 basis points (bps) on Wednesday and left the door open to another increase.
Oil and gas exporters in the Gulf tend to follow the Fed’s lead on rate moves as most regional currencies are pegged to the US dollar; only the Kuwaiti dinar is pegged to a basket of currencies, which includes the dollar.
However, regional economies have been largely shielded from stubbornly high inflation, and a Reuters poll in April showed that inflation in the region was expected to be between 2.1 percent and 3.3 percent this year and fall lower in 2024.
The UAE central bank also mirrored the Fed move, as did Qatar, Kuwait and Bahrain, although the latter left two rates out of four unchanged.
“The Central Bank of the UAE has decided to raise the Base Rate applicable to the Overnight Deposit Facility by 25 basis points – from 5.15 to 5.40 percent, effective from Thursday,” it said in a statement issued by state news agency WAM.
The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate, it added.
The Base Rate, which is anchored to the US Federal Reserve’s Interest on Reserve Balances, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates in the UAE, the statement also said.
Qatar also increased its main rates by 25 bps, taking the lending interest rate to 6.25 percent, the deposit interest rate to 5.75 percent and the repo rate to 6 percent, while Bahrain raised the one-week deposit rate to 6.25 percent and the overnight deposit rate to 6 percent.
The Central Bank of Kuwait increased its discount rate by 25 bps to 4.25 percent from 4 percent, and said in a statement it wants to remain supportive of economic growth, particularly in non-oil sectors. 
(With Reuters)