GCC central banks raise interest rates following US Fed hike

Central banks across the Gulf Cooperation Council (GCC) have raised interest rates by 25 basis points following a benchmark rate increase by the US Federal Reserve. This alignment reflects the region's monetary policy links to the US, as most GCC currencies are pegged to the US dollar.

The Central Bank of the UAE (CBUAE) increased its base rate on its Overnight Deposit Facility from 3.65% to 3.9%, effective September 17. The CBUAE maintained the rate for borrowing short-term liquidity through standing credit facilities at 50 basis points above the base rate. This move is expected to impact borrowing costs for residents and businesses, potentially increasing the cost of variable-rate loans and mortgages.

Other regional central banks followed suit: Saudi Arabia raised its repo rate to 4.5% and its reverse repo rate to 4%. The Central Bank of Bahrain increased its overnight deposit rate to 4.5%, while Qatar Central Bank announced 25-basis-point increases across its deposit, lending, and repurchase rates. Oman's central bank also raised its repo rate to 4.5%.

The US Federal Reserve's decision to lift the federal funds target range to 3.75%–4% was intended to assist in returning inflation to its 2% objective.