Eco
Most central banks in Gulf countries announced on Wednesday a hike in their key interest rates, following the US Federal Reserve's decision to raise its rates by a quarter of a percentage point. Oil and gas-exporting Gulf states typically follow the Fed's lead on interest rate decisions, as most regional currencies are pegged to the US dollar, with the exception of the Kuwaiti Dinar, which is linked to a basket of currencies. Regionally, Saudi Arabia raised its repo rate by 25 basis points to 4.50% and its reverse repo rate by the same margin to 4%. These steps occur as the Kingdom faces several attacks in recent weeks, with conflict escalating due to attacks by the Iran-aligned Houthi group. The UAE also announced a 25 basis point increase in its overnight deposit facility base rate to 3.9%, while the Omani Central Bank raised its repurchase agreement rate with local banks by 25 basis points to 4.5%. In both Qatar and Bahrain, their central banks raised key interest rates by 25 basis points. In contrast, the Central Bank of Kuwait kept its interest rates unchanged, stating in a separate announcement that current data reflects the "soundness and robustness of monetary and financial stability conditions" in the country. The Federal Reserve had responded by raising its benchmark interest rate by a quarter of a percentage point, bringing it to a range of 3.75% to 4%. This was influenced by persistent price pressures, impacted by former US President Donald Trump's pledge to cut prices, the combined effect of tariffs on global imports, the energy sector shock after the war on Iran, and capital expenditure driven by the AI boom. A Reuters poll in July indicated that most Gulf economies would face a sharper contraction this year than previously expected, before recovering in 2027. This decline is attributed to the war on Iran disrupting energy shipments with the effective closure of the Strait of Hormuz, damaging energy production facilities, and reducing ship traffic, which negatively impacted tourism and business in the region.
