Taking a cue from US Federal Reserve’s decision to hike key interest rate by 0.75 percent, largest since 1994, Saudi Arabia, the UAE, and Bahrain, have hiked interest rates to tame soaring inflation.
A few hours after the Fed raised interest rate, SAMA, the Saudi Central Bank, hiked key interest rates to ‘maintain monetary and financial stability, according to a statement released by the bank.
The repurchase agreement (repo) rate was raised by 0.5 percent to 2.25 percent from a previous 1.75 percent, and the reverse repurchase agreement (reverse repo) rate by 0.5 percent to 1.75 percent from a previous 1.25 percent.
The increase followed the hike in the US Federal Reserve benchmark rate on the same day.
The UAE was quick to follow Saudi Arabia in hiking interest rate. Its central bank raised the Base Rate applicable to the Overnight Deposit Facility (ODF) by 75 basis points, effective from Thursday, 16 June 2022.
The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate.
The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates.
The Central Bank of Bahrain (CBB) also raised its key policy interest rate. CBB’s key policy interest rate on the one-week deposit facility is raised from 1.75% to 2.50%.
The decision is in light of the development of the international financial market and the continuous measures taken by the CBB to ensure the smooth functioning of the money markets in the Kingdom, Bahrain News Agency (BNA) reported.
The Bank has also decided to raise the overnight deposit rate from 1.50% to 2.25%, the four-week deposit rate from 2.50% to 3.25% and the lending rates from 3.00% to 3.75%.
The CBB continues to monitor global and local market developments closely in order to take any further necessary actions to maintain monetary and financial stability in the Kingdom.
The US central bank raised the benchmark borrowing rate by 0.75 percentage points, bigger than the telegraphed 0.5-percentage-point increase after economic data in recent days showed inflation strengthening and consumer confidence weakening.
Federal Reserve Chair Jerome Powell said the Fed has the “tools” and the “resolve” to do what it takes to lower inflation from the highest level in more than 40 years, adding that the central bank could hike the benchmark interest rate by another 0.75 percentage points in July.