Gulf Cooperation Council Central Banks Hold Steady Interest Rates for Seventh Straight Period
In a move mirroring the US Federal Reserve, Gulf Cooperation Council central banks have decided to keep interest rates steady for the seventh consecutive period. This decision aligns with the Fed’s benchmark rate of 5.25 to 5.50 percent and comes as most regional currencies are pegged to the US dollar, leading policymakers to follow decisions made in Washington.
US Economic Outlook and Impact on GCC Countries
The freeze in interest rates comes as the US rate-setting panel outlined its view of an economy that is expected to remain virtually unchanged across its major dimensions for years. This decision implies that central banks in the GCC, such as the Saudi Central Bank (SAMA), UAE central bank, Qatar central bank, Kuwait central bank, Oman central bank, and Bahrain central bank, will maintain their repo rates at current levels.
Impact on Saudi Arabia and the GCC Economy
With repo rates representing short-term borrowing primarily involving government securities, the decision underscores the close economic ties and financial dynamics between the GCC countries and the global economic landscape, particularly the US. The freeze in interest rates means that Saudi Arabia mortgage rates and corporate loan borrowers are unlikely to see any relief soon. However, the strong non-oil economy and funding for mega projects by sovereign authorities are expected to support economic growth.
Future Outlook and Potential Benefits for Saudi Arabia
With the current oil price at $80 a barrel and anticipated interest rate cuts, Saudi Arabia stands to benefit with increased government revenue, bolstered economic activity, and overall macro-economic stability. The US Federal Reserve has indicated that rates will remain unchanged until the economy signals a need for adjustment, either through a decline in price pressures or rising unemployment rates.
Fed Chair Jerome Powell’s Insights and Economic Projections
Fed Chair Jerome Powell stated that the Fed has accepted a gradual decline in inflation toward its 2 percent target. The central bank’s preferred inflation measure is expected to remain largely unchanged, with rate cuts limited to a single quarter-percentage-point reduction. The latest Fed projections indicate that the US economy is expected to grow at a slightly above-trend rate of 2.1 percent this year, with the unemployment rate projected to remain steady at 4 percent.