GCC central banks raise benchmark interest rates to curb inflation

By Arya M Nair, Official Reporter
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GCC central banks have increased their benchmark interest rates, following the US Federal Reserve’s decision to increase the Interest on Reserve Balances (IORB) by 50 basis points, to curb soaring inflation in the world’s largest economy.

The Central Bank of the UAE (CBUAE) has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate.

The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates.

The Saudi Central Bank (SAMA) decided to raise the rate of “repo” agreements from 1.25 percent to 1.75 percent. SAMA also raised the rate of “reverse repo” agreements by 0.5 percent, from 0.75 percent to 1.25 percent, as part of the Bank’s efforts to maintain monetary and financial stability.

Meanwhile, the Central Bank of Kuwait (CBK) has raised the discount rate from 1.75 percent to 2 percent, effective May 5.

“The decision reflects the regulator’s “vigilant monitoring of domestic and international economic and geopolitical developments that resulted in all-time high global inflation rates, mainly driven by increased commodity and energy prices and continuous supply chain disruptions, which constitute a key source of imported inflation,” CBK governor Mr. Basel Al-Haroon.

The Central Bank of Bahrain (CBB) increased its key policy interest rate on the one-week deposit facility by 50bps to 1.75 percent from 1.25 percent. It also raised the overnight deposit rate to 1.5 percent from 1 percent, the four-week deposit rate to 2.5 percent from 1.75 percent and the lending rates to 3 percent from 2.5 percent.

The Qatar Central Bank (QCB) raised its repurchase rate by 50 bps to 1.75 percent. It also increased its deposit rate by half a percentage point to 1.5 percent and raised the lending rate by an equal amount to 2.75 percent.

The Central Bank of Oman is widely expected to follow with a similar move.

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