At the first meeting of the new year, the Federal Reserve decided to increase interest rates, but at a slower pace than before, to continue its battle against inflation.
The FOMC decided to raise the federal interest rate by 25 basis points to the range of 4.5-4.75 percent, in line with market expectations.
Over the course of 2022, the Federal Reserve raised interest rates seven consecutive times, including four 75 basis point hikes, before ending last year with a final 50 basis point increase in December.
US Federal Reserve Chairman Jerome Powell said after the meeting that the central bank’s financial decisions would need more time to bear fruit in curbing inflation, so he could not say when the bank would stop raising interest rates.
He explained the bank’s intention to continue raising interest rates to curb inflation so that it can reach its target of lowering inflation to just 2 percent.
He pointed out that inflation is still very high despite its noticeable decline over the past three months, but these indicators are not enough for the US Federal Reserve.
GCC Central Banks
Following the decision, Gulf central banks, with the exception of Qatar, raised interest rates.
The Saudi Central Bank (SAMA) announced that both the repo rate and the reverse repo rate were raised by 25 basis points to 5.25 percent and 4.75 percent, respectively.
It said that this decision aims to maintain monetary stability and support financial steadiness in light of monetary developments in global markets, as part of its attempt to avoid the Saudi Riyal being affected by US interest rate movements.
The UAE Central Bank continued to follow in the footsteps of the Federal Reserve, announcing today a new additional interest rate increase of 25 basis points from 4.4 percent to 4.65 percent, effective Thursday.
On the other hand, the Bank maintained the short-term liquidity borrowing rate through all existing credit facilities at 50 basis points above the base rate.
The Central Bank of Kuwait did not wait for the Fed’s decision, having raised the interest rate by 50 basis points last week to reach 4.0 percent from 3.5 percent, and the decision has been in effect since Jan. 26.
The Central Bank of Bahrain (CBB) decided to raise the base interest rate on one-week deposits by 25 basis points from 5.25 percent to 5.50 percent.
It also raised the overnight deposit rate from 5.00 percent to 5.25 percent, and on four-week deposits by about 25 basis points to 6.25 percent.
On the other hand, Qatar’s Central Bank announced fixing the deposit rate at 5 percent, the lending rate at 5.50 percent, and the repo rate at 5.25 percent.
In its monetary policy statement, the bank confirmed that it will continue to assess economic conditions and review monetary policy to address any changes in economic requirements.
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