GCC REACTS TO FED INTEREST HIKES
The Federal Reserve raised interest rates for the first time in nearly a decade from a range of 0% to 0.25% to a range of 0.25% to 0.5%, prompting different reactions from the GCC central banks.
While the updated Qatar Economic Outlook 2015-2017 predicts that domestic interest rates in Qatar are likely to rise during this period due to increasing funding requirements of government and the commercial banks and “accentuated” by the US Fed lift-off, Qatar Central Bank (QCB) didn't immediately change its interest rates in response to the Fed hike, in line with what QCB governor Sheikh Abdulla bin Saud Al Thani had previously stated. Analysts have speculated that since QCB did not cut rates to the same level as the Fed after the 2008 financial crisis, it would not have to raise rates as quickly.
However, several Gulf nations raised interest rates within a few hours after the Fed announced its hike, with Saudi Arabia the first to make the move, followed by Kuwait, Bahrain and finally the United Arab Emirates, who all hiked interest by one-quarter of a percentage point. All these currencies are pegged to the dollar and the raised rates may eventually lead to higher loan costs and tighter liquidity.
For Qatar too the increase in rates is inevitable according to the Ministry of Development Planning and Statistics. “Over the outlook period, and in circumstances where oil and gas revenues have ebbed and public sector deposits in the commercial banking system have fallen, domestic interest rates are likely to feel upward pressure from rising funding needs of government and the commercial banking system, which must now comply with tighter regulatory standards,” it said.