Gulf states hike rate after Fed decision – Moves come despite decline in oil prices

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KUWAIT CITY, Dec 17, (Agencies): Energy-rich Gulf states Saudi Arabia, Kuwait and Bahrain raised their interest rates Wednesday after a landmark decision by the US Federal Reserve to hike its rates. The move by the Gulf countries came despite the sharp decline in oil prices and forecasts of a sluggish economic growth.

The world’s top oil exporter Saudi Arabia raised its overnight reverse Repo rate by 25 basis points to 50 basis points but left its benchmark Repo rate unchanged at 2.0 percent, the official SPA news agency reported.

The Saudi Arabian Monetary Agency, or the central bank, said the decision was taken in light of developments in local and international financial markets. The decision is effective immediately.

The Central Bank of Kuwait said it had decided to raise its benchmark discount rate by 25 basis points to 2.25 percent.

Governor Mohammad al-Hashel said the increase is to ensure the “competitiveness of the national currency”, and support the national economy, the official KUNA news agency reported.

It will be effective from Thursday.

Bahrain also raised its overnight interest rate by 25 basis points to 0.5 percent and its rate for one week by a similar value to 0.75 percent, the Bahrain News Agency reported.

The kingdom however kept Repo rate unchanged at 2.25 percent.

The three countries are members of the six-nation Gulf Cooperation Council (GCC) alliance. Other members are Qatar, United Arab Emirates and Oman.

All the GCC states except Kuwait peg their currencies to the US dollar and have normally followed US decisions on interest rates.

Kuwait links its dinar 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.

Earlier Wednesday, the Fed raised the benchmark federal funds rate by a quarter point to 0.25-0.50 percent, its first interest rate hike in more than nine years, saying the economy was growing at a moderate pace and should accelerate next year.

The subsequent rate decisions of the GCC states came despite the sharp decline in the price of oil which contributes to over 90 percent of public revenues.

The International Monetary Fund has cut its projections on economic growth for GCC states and forecast that all six nations will end up this year with a budget deficit.

Oil prices have continued their recent decline, falling by around 60 percent since mid-2014. IMF has projected the GCC states would lose around $275 billion in revenues as a result.

The United Arab Emirates central bank said on Thursday it decided to raise the interest rate on its certificates of deposits by 25 basis points, effective immediately, it said in a statement.

The announcement came a day after the US Federal Reserve raised rates for the first time in nine years.

Certificats of Deposit are the monetary policy instrument used by the UAE central bank through which changes in interest rates are transmitted.

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