Gulf Central Banks Hike Interest Rates Following Fed’s Move
The benchmark borrowing rates of the Central Banks of UAE, Saudi, Qatar, and Bahrain have been increased following a hike in the US Federal Reserve rates. The US Federal Reserve rates have been increased for the seventh time this year to counter inflation in the US which hit a forty-year high.
The latest raise was by fifty base points compared to the previous seventy-five after which the consumer prices began to come down. The current interest rate stands between 4.25 percent and 4.50 percent which is the highest in the last fifteen years. The Central banks of GCC also had to follow suit because their currencies are connected with the US dollar.
Throughout the year, many Gulf countries have followed the US Federal Reserve’s interest rate decisions
This move is seen as a precautionary one as the inflation in UAE is low compared to other parts of the world. The Saudi central bank Sama had increased the rate by a half percent which in total now reaches five percent and also a reverse repo rate of 4.5 percent. The UAE central bank raised the overnight deposit facility by fifty base points to make it a total of 4.4 percent from 3.9 percent.
The central bank of Qatar had increased the rate by fifty base points to make it 5.25 percent. The deposit rate also was raised up to five percent with the lending rate also raised to a similar percentage of 5.5.
There is a global price hike because of the supply chain disruptions caused by the Russian-Ukrainian war and this is also adding up to the general instability in the banking sector. According to experts, global inflation is estimated to hit 8.8 percent this year from 4.7 percent last year. With the current countermeasures in place, it is expected to reduce to 6.5 percent by 2023.
Oil prices are also increasing because of the Russian-Ukrainian war and this is also causing inflation to rise. After the crude oil price came up to $140 per barrel in march this year, it fell to $70 a barrel as there is a fear of recession and demand concerns from the world’s largest crude oil importer China.
The world bank reported that food and energy prices are at an all-time high because of the Russian-Ukrainian war and this has also led to multiple issues in global trade markets. They also said that the Middle East and North African (MENA) economies will have a growth of 5.5 percent this year this is their fastest rate of growth since 2016.
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The oil exporting countries are also benefiting from hydrocarbon prices which will contribute on a high scale to their economy. Even with all the global economic instability, the UAE economy is at a steady growth of around six percent this year. The UAE the second largest economy in the Arab world has recorded a growth of 8.4 percent during the first three months of this year with its continued efforts to counter the slowdown caused by the covid-19 pandemic.
IMF estimates that developed economies like the US are set to have a growth of 1.6 percent compared to an earlier estimate of 2.3 percent. The stunt in growth is mainly due to the inflation and recession happening in the US economy.
Other major western economies are also showing slow growth averaging about 2.4 percent compared to 5.2 percent in the last year. 2023 is forecasted to have an even slower growth rate with the US estimated to make only a minor 0.5 percent when compared to the earlier projection of 1.2 percent. The GCC economies are considered more stable because of their dependence on oil and other expansive policies.
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