Kuwait ‘least strict’ in rate hikes compared to Gulf peers

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Future outlook for ME economy still positive

KUWAIT CITY, Sept 13: A British institute stated that Kuwait will remain the least strict in the Gulf in raising interest rates, expecting further interest rate increases by the Central Bank of Kuwait, but it will not keep pace with the series of interest rate hikes from the US Federal Reserve, as the dinar is linked to a basket of undeclared currencies and not only the US dollar, reports Al-Qabas daily.

The Institute of Chartered Accountants in England and Wales (ICAEW) confirmed that due to the peg of the Gulf currencies to the dollar, monetary policies in the region do not tend to deviate from the path of the US Federal Reserve, expecting it to continue raising interest rates until early 2023.

Economy
The institute explained that the future outlook for the Middle East economy is still positive, despite the significant decline in global GDP growth and the rise in infl ation and interest rates, its fastest rate since 2011. “The strong outlook for the Gulf economies for this year is driven by higher oil production and investment spending and to a lesser extent by consumer and business spending,” the report said.

The institute pointed out that it has revised its forecast for oil prices for the current year, from $112 a barrel 3 months ago to $104 a barrel currently, and crude prices have fallen since the beginning of June and are now standing below $100 a barrel, noting that reaching an agreement in the Iranian nuclear negotiations may lead to more from low oil prices.

“Despite the drop in oil prices from the average of the second quarter of the current year, which is $113.5 per barrel,” the sources said, “the current prices of crude are still supportive of the Gulf public finances, and we still expect financial surpluses for the Gulf countries at 9.7% of the Gulf GDP, which is the highest level since 2012, as the Gulf financial surpluses in the current year will reduce government debt ratios compared to the gross domestic product.”

The British Institute confirmed that the Gulf countries maintain significant financial savings with breakeven prices below $80 per barrel (according to the International Monetary Fund) in all countries in the region except Bahrain, indicating that economic growth across the region will remain supported in the coming quarters.

The ICAEW pointed out that economic indicators that measure nonoil performance in the region indicate continued strength even as inflation continues to rise, indicating that inflation in the Gulf countries is still expected to reach 3.1% this year before slowing to 2.7% next year. The nonoil GDP of the Gulf states is expected to expand by 4.4% this year. The report concluded saying, “the latest inflation data for many Gulf countries is consistent with our view that inflation pressures in the region have peaked and will decrease further in the future.

Inflation slowed in Kuwait, Qatar and Oman last July thanks to lower food prices and rose slightly in Bahrain and Saudi Arabia.” The report stated that the tourism and travel activity in the Gulf countries will gain strong momentum in the third quarter of this year, ignoring the impact of the depreciation of regional currencies against the dollar. It is expected that the region will witness a revival of travel to it with the support of Qatar’s organization of the FIFA World Cup, where Doha hopes to receive 1.5 million visitors to participate in its activities.

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