Gulf states follow Fed with key rate hikes

cairo — Kuwait raised its key interest rate on Wednesday for the first time in a year, tracking a quarter-point increase in the US Federal Reserve benchmark rate.

Kuwait’s central bank raised the discount rate to 3 per cent to keep the dinar competitive, according to an emailed statement. The UAE, Qatar and Bahrain also put up their benchmark rates shortly after the widely anticipated Fed decision to lift the federal funds rate target range to 1.5 per cent to 1.75 per cent in a unanimous 8-0 vote. Gulf Arab central banks that peg their currency to the dollar typically follow Fed decisions in lockstep, but Kuwait pegs its dinar to a basket of currencies and chose to sit out the previous two increases in US rates in 2017 in order to preserve growth and keep down borrowing costs.

The Kuwaiti central bank said it had broken that pattern on Wednesday in order maintain the competitiveness of its currency and keep local savings attractive.

The UAE raised its repo rate by 25 basis points to 2 per cent, and increased its certificates of deposit rate by the same amount. Bahrain raised its overnight deposit rate by 25 basis points to 1.75 per cent, and its one-week deposit facility rate by a quarter point to 2 per cent. Qatar raised its deposit rate by the same amount to 1.75 per cent on Thursday, while keeping its lending and repo rates at 5 per cent and 2.5 per cent respectively. Saudi Arabia did not announce a move, having preemptively increased its benchmark repo rate last week for the first time since 2009. — Bloomberg