Gulf Central Banks Hike Rates as Fed Makes Second 75bp Hike

DUBAI, July 27 (Reuters) – Most Gulf central banks raised key interest rates by three-quarters of a percentage point on Wednesday, following the lead of the U.S. Federal Reserve, with their currencies pegged to the dollar.

The Central Bank of Kuwait, the only one of the six Gulf Cooperation Council (GCC) countries to peg its currency to a basket rather than the dollar, raised its main discount rate by 25 basis points (bps) to 2.5%. Read more

The central banks of Saudi Arabia, the United Arab Emirates, Qatar and Bahrain raised their key rates by 75 bps to 3%, 3.75%, 3% and 3.25% respectively. Read more

“Rate hikes by GCC central banks continue to show their commitment to the regional currency’s peg to the dollar,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank, adding that the basket of currencies in the Kuwait gave him more monetary flexibility.

The Fed’s hike comes on top of a 75 basis point hike last month – its biggest since 1994 – and more modest moves in May and March as it battles a breakout in inflation in the 1980s level.

Saudi Arabia’s central bank has resumed acting alongside the Fed after raising rates by 50 basis points last month, deviating from the Fed’s decision as it faces lower inflation than the rest of the world. Gulf. Read more

“Inflation in the region is lower than in the United States and therefore the same magnitude of monetary tightening is not needed in the region. fuel,” Malik said.

The central bank of the United Arab Emirates, the only GCC country that does not have a cap on fuel prices, said this month it expects inflation of 5.6% for 2022.

The Central Bank of Oman, the latest GCC country, is expected to follow with a similar move.

“Our forecast already assumes headwinds to non-oil economic activity and credit demand in the GCC due to the rapid pace of interest rate hikes in this cycle, especially as they increase cumulatively,” Malik said.

“However, we see key development plans continuing to support economic activity.”

Reporting by Yousef Saba; Editing by Andrea Ricci

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