The central banks of Saudi Arabia, Kuwait and Bahrain increased their key policy interest rates on Wednesday after the US Federal Reserve hiked its rate.
The US Federal Reserve on Wednesday raised the benchmark interest rate a quarter point, noting that inflation is moving closer to the central bank’s two percent target.
The Fed’s policy-setting Federal Open Market Committee voted to raise the key federal funds rate to a range of 0.75-1.0 percent, although there was one dissenting voice.
Saudi Arabia’s central bank said on Wednesday that it had raised its reverse repo rate, the rate at which commercial banks deposit money with the central bank, by 25 basis points to 1.00 percent.
But the central bank said it was keeping its repo rate, which it uses to lend money to banks, unchanged at 2.00 percent.
The UAE central bank said that it was raising key interest rates by 25 basis points, effective on Thursday.
Rates on certificates of deposit issued by the UAE central bank will increase, and the repo rate at which financial institutions borrow short-term liquidity from the central bank will increase to 1.25 percent, it said.
Kuwait raised its benchmark discount rate by 25 basis points to 2.75 percent, the central bank said.
Central bank governor Mohammad al-Hashel said in a statement the increase was taken “to ensure the continued competitiveness,” of the Kuwaiti dinar in light of interest rate movements on major currencies.
The hike will be effective from Thursday, the statement said.
The Kuwaiti decision was taken although the emirate is the only member of the six-nation Gulf Cooperation Council (GCC) not to peg its currency to the US dollar.
Instead, the dinar is linked to a basket of major currencies, the composition of which is kept confidential. But it is believed that the greenback accounts for more than 70 percent of its weight.
Under central bank regulations, interest rates on consumer loans cannot exceed three percentage points above the discount rate.
Bahrain said it had raised its key policy interest rate on the one-week deposit facility by 25 basis points to 1.25 percent.
It also increased three other rates by 25 bps: the overnight deposit rate to 1.00 percent, the one-month deposit rate to 1.75 percent, and the lending rate to 3.00 percent.
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