The Federal Reserve’s decision to raise its key interest rate on Wednesday prompted five Gulf states to take similar steps.
Saudi Arabia
The Saudi Central Bank (SAMA) decided to raise the rate of repurchase agreements (Repo) by 0.5 percent from 1.25 percent to 1.75 percent. It also raised the rate of reverse repurchase agreements (repo) by 0.5 percent from 0.75 percent to 1.25 percent.
UAE
The Central Bank of the Emirates decided to raise the “base rate” on overnight deposit facilities by 50 basis points, as of today, Thursday.
The Central Bank also decided to keep the rate applicable to borrowing short-term liquidity from the Central Bank through all existing credit facilities at 50 basis points above the base rate.
The base rate, which is linked to the interest rate on reserve balances approved by the Federal Reserve, determines the general position of the monetary policy of the Central Bank. It also provides a minimum effective interest rate for overnight cash market rates in the country.
Qatar
The Central Bank of Qatar announced raising the bank’s interest rate for deposits by 50 basis points to become 1.50 percent, according to the Qatar News Agency.
It also raised the bank’s lending interest rate by 25 basis points, to 2.75 percent. And it decided to raise the repurchase price by 50 basis points, to become 1.75 percent.
Qatar’s Central Bank stated that the decision to raise the interest rate was based on local and international economic data.
Bahrain
Also, the Central Bank of Bahrain decided to raise the basic interest rate on one-week deposits from 1.25 percent to 1.75 percent.
The Bahrain News Agency (BNA) stated that the interest rate on overnight deposits was also raised from 1 percent to 1.5 percent, and the interest rate on deposits for a period of four weeks was raised from 1.75 percent to 2.5 percent. This is in addition to raising the interest rate imposed by the Central Bank on retail banks in return for lending facilities from 2.5 percent to 3 percent.
Federal Reserve
The Federal Reserve had announced raising the main interest rate by 50 basis points (half a percentage point), to range between 0.75 percent and 1 percent. It is the first step of this magnitude since the year 2000 and aims to contain the highest inflation rate recorded in the country in four centuries. FED president, Jerome Powell, stressed that the US economy is still strong despite the slowdown in growth, stressing that this does not pose any risks of recession now.
Powell said the US central bank would move quickly to raise interest rates to contain rising inflation.
The Federal Open Market Committee of the US Central Bank indicated that other increases “may be appropriate.”
In addition to raising key interest rates, the Federal Reserve announced that it will start reducing its asset purchase policy from June 1st.
This means that the Fed will not buy back the securities and will allow the bonds to become due, which will lead to an automatic reduction of the annual closing account.
Most experts now expect another, bolder increase of three-quarters of a percentage point at the June meeting, which would be the first since 1994.
