Most central banks in the Gulf region raised their key interest rates yesterday, Wednesday, following the Federal Reserve's (U.S. central bank) increase of the target rate by a quarter of a percentage point, which was in line with expectations.
Oil and gas-exporting countries in the Gulf tend to follow the Fed's lead in interest rate movements, as most of the region's currencies are pegged to the U.S. dollar.
The central banks in Saudi Arabia, the UAE, Bahrain, and Qatar raised their interest rates by 25 basis points. The Saudi Central Bank stated: "It has decided to raise the repo rate by 25 basis points to 5.75%, and the reverse repo rate by 25 basis points to 5.25%."
The Central Bank of the UAE noted that it "has decided to raise the key rate on overnight deposit facilities by 25 basis points to 5.15% from 4.90%."
Bahrain also raised its key interest rate, increasing the one-week deposit rate to 6% from 5.75%.
Qatar raised its deposit, lending, and repo rates by 25 basis points, bringing the deposit rate to 5.5%, the lending rate to 6%, and the repo rate to 5.75%.
A previous statement from the bank indicated it would keep interest rates unchanged; however, a new statement was later published indicating that interest rates had been raised. The Central Bank of Oman also announced an increase in its repo rate for local banks by 25 basis points, raising it to 5.75%.
Gaston Alexander, managing director at Gulf Economics, noted that "the impact of interest rate hikes on credit growth and non-oil activity in the region has been limited so far, although these indicators might be slightly stronger if interest rates were lower."
Alexander, who is also a Gulf affairs analyst at Global Source Partners, added: "Another 25 basis points will not make a significant difference. The expectations around interest rates are more important, and it seems we may be close to a peak."
The Federal Reserve raised its interest rate by 25 basis points on Wednesday, marking the tenth consecutive increase since March 2022, but indicated that it might refrain from further hikes.
