The Saudi Arabian Monetary Authority (SAMA) has increased its interest rate by 25 basis points to 5.25 percent, in line with the Federal Reserve’s move to combat inflation. The Reverse Repo rate has also been raised to 4.75 percent. Inflation in the Kingdom has risen to 3.3 percent in December from 2.9 percent in November. The Fed has been gradually increasing its interest rate over the past few months, with a 50 basis point hike in December and 75 basis point hikes in November, September, July, and June.
Inflation is a global concern, with the US economy experiencing its highest prices since the early 1980s, despite some recent signs of slowing down. Rising interest rates increase the cost of borrowing, which can lead to reduced spending as people try to save money on their mortgage and loan repayments. On the other hand, savers will benefit from higher returns, but the gains are still lower than the rising cost of goods and services.
Most of the Gulf region’s currencies are pegged to the US dollar, making the Federal Reserve’s monetary policy a key driver for the region’s central banks. The UAE and Central Bank of Oman have raised their interest rates, while Bahrain raised its main rate by 25 basis points. Qatar, however, chose to keep its rates unchanged. The Central Bank of Kuwait raised its interest rate by 50 basis points last month, but does not necessarily follow the Fed’s hikes.
A recent poll showed that the Central Bank of Egypt is expected to raise its overnight interest rates by 150 basis points at its regular monetary policy committee meeting on Thursday. A poll of 13 analysts anticipated the deposit rate to increase to 17.75 percent and the lending rate to 18.75 percent. The CBE has increased its interest rates by 800 basis points over the past year and has been constantly devaluing its currency.
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