Gulf Cooperation Council Central Banks Maintain Interest Rates Amid US Federal Reserve Decision
In a move that marks the sixth consecutive decision, Gulf Cooperation Council (GCC) central banks have chosen to keep interest rates steady as the US Federal Reserve maintains its benchmark level between 5.25 percent and 5.50 percent.
Economic Ties with the US Dictate Monetary Policy in the Region
Given that most currencies in the GCC region are pegged to the US dollar, monetary policy closely follows the decisions made in Washington. This latest freeze in interest rates comes as the rate-setting panel notes a lack of progress towards the committee’s 2 percent inflation objective.
Market Expectations Adjust as Central Banks Hold Rates
Vijay Valecha, chief investment officer at Century Financial, emphasized that the decision to maintain interest rates for the sixth time has shifted market expectations. Previously anticipating six rate cuts by year-end, the market now predicts only one cut.
Stability in GCC Markets Anticipated Amid Global Economic Dynamics
Valecha highlighted that the monetary policies of GCC central banks, including those of the UAE, Saudi Arabia, Bahrain, Oman, and Qatar, usually mirror the actions of the Fed due to currency pegs. This alignment suggests that interest rates in GCC markets are likely to remain stable in the near future.
Repo Rates Reflect Economic Interconnectedness
The decision to maintain interest rates also implies that the Saudi Central Bank (SAMA) will keep its repo rates at the current level of 6 percent. Similarly, central banks in the UAE, Kuwait, Qatar, Oman, and Bahrain have mirrored the Fed’s stance. Repo rates, which involve short-term borrowing primarily with government securities, underscore the close economic ties between GCC countries and the global economic landscape, particularly the US.
US Federal Reserve Indicates Caution in Rate Cuts
The US central bank has expressed that it will not consider reducing the target range until it is confident that inflation is steadily moving towards the 2 percent target. This cautious approach suggests that rate cuts are not imminent, pending sustained movement towards the inflation goal set by the Fed.