The Central Bank of Kuwait was the only member of the six-nation Gulf Cooperation Council (GCC) not to follow the Federal Reserve having followed the December 2015, December 2016 and March 2017 Fed hike.
While the Central Bank of Oman has remained on hold after the Fed move but its key policy rate – the repo rate – has been rising gradually since August 2016.
Weak backdrop
Analysts said the higher interest rates, coming against a backdrop of slowing economic and credit growth are negative for the region.
“Higher rates this year would put further negative pressure on non-oil economic activity and business sentiment,“ analysts at Standard Chartered Bank said in a research note.
“Growth in credit to the private sector is already falling across the GCC, and would be expected to fall further under the weight of higher interest rates. However, some of the impact from the rate rises would be offset by the weaker US dollar,” they said. The dollar is down by around 5% this year against a basket of GCC currencies.
Rates creep higher
After the latest move the Saudi Arabian Monetary Authority (SAMA) implemented a 25bps increase in its reverse repo rate to 1.25% and maintained its repo rate at 2.00%.
The Central Bank of the UAE raised its rate on certificates of deposit by 25bps, as well as a 25bps increase in its repo rate to 1.5%.
The Central Bank of Bahrain (CBB) raised its key policy rate – the one-week deposit rate – by 25bps in response to the Fed move. The CBB also raised its three other policy rates by 25bps.
The Qatar Central Bank raised its QMR deposit rate by 25bps to 1.50%, while keeping its key policy rate (the lending rate) on hold.
Finally, the Central Bank of Jordan announced that all its policy rates would be increased by 25bps effective 18 June, 2017. This includes the 1-week repo rate which will rise to 3.75%.
