The central banks of Qatar, the UAE, Saudi Arabia, Bahrain, Kuwait and Qatar raised their benchmark borrowing rates after the US Federal Reserve raised its key interest rate for the fifth time this year to slash surging inflation and restore price stability.
The Fed on Wednesday increased the policy rate by 75 basis points (bps), its third consecutive three-quarters of a percentage point increase.
The latest move by the US central bank came after consumer prices rose by 8.3 percent in August, exceeding economists’ expectations of 8.1 percent and above the Fed’s 2 percent target.
After being criticised for acting too slowly to curb rising prices and being behind the inflation curve, the Fed has shifted gears and is doubling down on higher interest rates to bring consumer prices down.
The Fed signalled further rate raises were possible, stating that it “anticipates that ongoing increases in the target range will be appropriate”.
Most central banks in the GCC follow the Fed’s policy rate moves because their currencies are pegged to theUS dollar.
In line with its “objective of maintaining monetary and financial stability, and in light of recent global developments”, the Saudi Central Bank, better known as Sama, raised its repurchase agreement (repo) rate by three quarters of a percentage point to 3.75 per cent and its reverse repo rate by a similar margin to 3.25 per cent.
The Central Bank of the UAE raised its benchmark base rate for its overnight deposit facility (ODF) by three quarters of a percentage point to 3.15 per cent. It maintained the rate applicable to borrowing short-term liquidity from the regulator through all standing credit facilities at 50 bps above the base rate, the CBUAE said on Wednesday.
Inflation in the UAE is relatively low when compared with rates in other parts ofthe world.