DUBAI, Feb 1 (Reuters) – Most central banks across the Gulf raised key interest rates on Wednesday after the Federal Reserve increased its target interest rate by a quarter of a percentage point, although Qatar opted to hold.
The Fed raised its target interest rate by 25 basis points, signaling a more dovish stance after a series of larger hikes, but maintained that increases would continue as it battles to rein in inflation in the United States.
Gulf oil exporters tend to follow the Fed’s lead on rate moves as the majority of regional currencies are pegged to the U.S. dollar.
The central banks of Saudi Arabia and the United Arab Emirates, the region’s two largest economies, both followed the Fed in increasing rates by 25 bps.
The Saudi Central Bank, also known as SAMA, lifted its repo and reverse repo rates to 5.25% and 4.75%, respectively, while the UAE said its base rate would increase to 4.65% effective on Thursday.
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Bahrain also lifted its key interest rates by the same. Its one-week deposit facility rate was increased to 5.5% and the overnight deposit rate to 5.25%.
However, Qatar’s central bank decided to leave rates unchanged and kept its deposit, lending and repo rates at 5%, 5.5% and 5.25%, respectively.
“Qatar Central Bank aims to maintain the current interest rates at an appropriate level to support sustainable economic growth,” it said in a statement.
Qatar has mirrored the Fed’s moves following each policy rate meeting since March, though in November it raised its deposit and repo rates by 75 basis points – matching the Fed’s hike – but only lifted its lending rate by 50 basis points.
“The step-down in the magnitude of the rate hike is positive for the GCC, who have not required such an aggressive tightening cycle,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“We expect to see some greater impact of the rate hikes this year on credit demand, though the investment programmes should provide some support the credit growth,” Malik added.
Additional reporting by Alaa Swilam and Ahmed Tolba in Cairo; Writing by Rachna Uppal
Editing by Nick Zieminski
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