Arabian Gulf central banks are following the Federal Reserve’s interest-rate increase, maintaining their commitment to the US dollar peg even as lower oil prices hit economic growth.
Policy makers in Saudi Arabia, the UAE, Kuwait, Bahrain and Qatar raised borrowing costs within hours after the Fed raised its benchmark rate for the first time this year.
The UAE Central Bank said on Thursday it was raising interest rates on its certificates of deposit, its main policy instrument, by 25 basis points.
The prospect of further increases in US rates next year will complicate efforts to bolster economic growth and ease a cash squeeze among Gulf banks as revenue from oil exports, the region’s main source of income, plummets.
“At a time of tight liquidity and slowing economic activity this is going to be additional headwind to the situation, especially if you see more frequency in interest rate hikes,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “This is going to be something that will affect the region.”