Most Gulf banks said on Wednesday that they will raise the main interest rates, after the Federal Reserve (US Central Bank) raised the main interest rate three quarters of a percentage point for the fourth time in a row.
The US Central Bank’s move was motivated by its goal to control inflation in the US, but because the majority of the region’s currencies are pegged to US dollars, it will also influence monetary policy in the Gulf.
The two largest economies in the area, Saudi Arabia and the UAE, increased interest rates by 75 basis points. The repurchase rates (Ribo) and the reverse purchase price were increased by the Saudi Central Bank to 4.5 percent and 4 percent, respectively. As on Thursday, the UAE Central Bank will increase the base interest rate to 3.9%.
Qatar boosted interest rates from 50 to 75 basis points, while Bahrain similarly raised its base interest rate by 75 basis points.
Neither Kuwait nor the Sultanate of Oman have yet made any announcements about interest rate changes.
The effect of interest rate increases in the Gulf oil exporting nations has been quite minimal so far in 2022.
Despite interest rate increases, non-oil sectors in Gulf nations have performed well this year, according to Monica, the head economist at Abu Dhabi Commercial Bank.
As interest rates rise more in the coming year, “we anticipate some greater consequences, although success in medium-term development plans is anticipated to underpin the activity.”
Earlier this week, a senior official with the International Monetary Fund stated that the rise in oil prices is likely to result in financial surpluses and the growth of foreign reserves with Gulf economies this year, which will lessen the need for borrowing by governments and reduce their need to compete with the private sector.
After a comparable American move, most Gulf central banks increased interest rates.
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