UAE, other Gulf central banks follow Fed to raise key rates

The UAE and other Gulf central banks on Wednesday raised their main interest rates by a quarter percentage point in lockstep with the U. Federal Reserve as it began a monetary tightening cycle in a newly aggressive stance against rising inflation.

The six Arab nations of the Gulf Cooperation Council typically follow the Fed’s lead on interest rates as their currencies are pegged to the US dollar - except Kuwait’s, which is pegged to a basket of currencies including the dollar.

“If policymakers in the Gulf did not allow interest rates to follow those in the U.S., capital would flow out of their economies and this would put downwards pressure on their currencies,” James Swanston, Middle East and North Africa economist at Capital Economics, wrote in a research note.

The Central Bank of the UAE raised its base rate, which is on its overnight deposit facility, by 25 basis points (bps) to 0.4%. CBUAE maintained the rate on borrowing short-term liquidity from it through all standing credit facilities at 50 bps above the base rate.

The Central Bank of Kuwait increased its discount rate to 1.75% from 1.5% effective March 17. CBK also said it was increasing other rates by varying percentages, without providing specifics.

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