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Most Gulf central banks follow Fed’s lead and cut key interest rates

Pabio November 8, 2024

Most Gulf Cooperation Council (GCC) central banks lowered their key interest rates on Thursday, following the Federal Reserve’s decision to cut US rates by a quarter of a percentage point.

The Fed cut interest rates by 25 basis points as policymakers took note of a labor market that has “generally eased” while inflation continues to advance toward its 2% target.

Gulf oil and gas exporters generally follow the Fed’s lead in raising rates because most regional currencies are pegged to the U.S. dollar; only the Kuwaiti dinar is linked to a basket of currencies, of which the dollar is a part.

“A fall in interest rates in GCC countries could fuel growth in credit-sensitive sectors, such as real estate and domestic spending, thereby strengthening the resilience of the economy as a whole,” he said. said Vijay Valecha, chief investment officer at Century Financial.

Saudi Arabia, the region’s largest economy, cut its repo rate (Repo) and repo rate by 25 basis points each, to 5.25% and 4.75% respectively, and the UAE also cut the base rate of its demand deposit facility by a quarter. one percentage point to 4.65%.

Most regional economies have been largely spared from stubbornly high inflation elsewhere and have implemented ambitious plans to diversify revenue sources and boost non-oil growth.

In Qatar, the central bank chose to cut its three main interest rates by just over 30 basis points, while the central bank of Bahrain settled for a 25 basis point reduction in its overnight deposit rate.

Growth in the GCC’s largest economies is expected to accelerate next year amid rising oil production, according to a recent Reuters study. surveywhile inflation is expected to remain subdued this year and next, with median forecasts ranging from 0.8% to 3.0%.