Gulf banks raise interest rates, following US Federal Reserve

Several central banks in the Gulf raised interest rates Wednesday.

What happened: The Central Bank of the United Arab Emirates raised its base rate for its overnight deposit facility from 2.4% to 3.15%. This is the rate at which banks loan to other banks after normal business hours.

The Saudi Central Bank raised its repo rate from 3 to 3.75% and its reverse repo rate from 2.5% to 3.25%. The repo rate is the interest rate on central bank purchases of securities, e.g. bonds from commercial banks. The reverse repo rate is the rate at which the central bank borrows from commercial banks. 

The Qatar Central Bank raised its deposit rate from 3% to 3.75%, its lending rate from 3.75% to 4.5% and its repo rate from 3.25% to 4%. 

The Central Bank of Bahrain raised the rate for its one-week deposit facility from 3.25% to 4%, as well as its overnight deposit rate from 3.00% to 3.75%, the four-week deposit rate from 4.00% to 4.75% and lending rates from 4.50% to 5.25%.

Why it matters: These 0.75% increases correspond to the US Federal Reserve raising interest rates by the same percentage Wednesday. Gulf states tend to mirror the US monetary institution’s interest rate decision. Gulf central banks also raised rates in July in response to the Fed. 

The Central Bank of Kuwait, however, raised its discount rate from 2.75% to just 3%. Kuwait has raised its rates by a smaller percentage than the Fed in the past, and this could reflect a more bullish outlook on inflation. 

Inflation is rising throughout the Middle East, in part due to supply chain disruptions resulting from the Russian invasion of Ukraine. Central banks often raise interest rates to discourage spending in an effort to reduce inflation. 

Know more: Israel and Egypt usually make interest-rate decisions on their own timetable, so they may not raise rates immediately — or at all. Turkey notably cut interest rates last month, despite skyrocketing inflation in the country.