Arab News, Saturday, Mar 25, 2023 | Ramadan 3, 1444
SAMA and GCC banks follow Fed’s 25 bps interest rate hike
Saudi Arabia: The Saudi Central Bank
has increased its interest rate by 25 basis points to 5.5 percent, echoing
Wednesday’s move by the US Federal Reserve to curb inflation.
A statement from the bank, also known as SAMA,
noted its Reverse Repo rate has also increased to 5 percent.
While inflation is still on the rise in the
Kingdom, the annual rate eased to 3 percent in February, down from 3.4 percent
the previous month.
The Fed’s quarter-point interest rate hike follows
months of larger increases, as it hiked 25 basis points in February, 50 basis
points in December, and 75 basis points in November, September, July and June.
While the US Central Bank’s decision was driven by
its desire to lower high inflation, this played a part in driving the Gulf
region’s monetary policy, as most of the region’s currencies are pegged to the
dollar.
Following the US Fed’s decision, regional central
banks also swung into action to raise their interest rates.
Furthermore, the UAE's central bank increased its
base rate to 4.9 percent, effective on Thursday.
Bahrain also raised its main rate by 25 basis
points, with its one-week deposit facility rate rising to 5.75 percent, while
the overnight deposit rate hit 5.5 percent.
Qatar’s central bank, which had kept its rates
unchanged last month, increased its lending and deposit rates to 5.75 percent
and 5.25 percent respectively.
Inflation in the GCC region is higher than it was
in almost 10 years, but still lower than numerous western countries, ranging
between 5 and 6 percent last year.
Despite recent signs of a slow-down in the US
economy, prices are running at their highest level since the early 1980s.
Rising interest rates increase the cost of
borrowing for consumers, leading to more expensive mortgage bills and loan
repayments – something that can lead to reduced spending on other items as
people try to reduce costs.
However, savers benefit from the interest rates
rise, with money stored away gaining a greater return. Yet, with inflation
across the globe still running hot, any extra interest gained by savings is
lower than the rising cost of goods and services.