From: Mahmoud Gamal
Abu Dhabi – Mubasher: Four Gulf central banks reacted to US Federal Reserve’s interest rate hike by also raising their interest rates on Wednesday.
The Fed, as expected by many economists and analysts, raised its interest rates after the US' latest strong economic indicators.
The Saudi Arabian Monetary Authority (SAMA) raised the reverse repo rate by 25 basis points, while keeping the repo rate unchanged.
The Central Bank of the UAE also raised benchmark interest rates by 25 basis points.
Following example, the Kuwaiti central bank raised the discount rate by a quarter-percentage point to 2.75% as of Thursday.
Additionally, the Central Bank of Bahrain raised its key interest rate on the one-week deposit facility by 25 basis points to 1.25%.
“Gulf countries raising interest rates after the Fed’s move is natural. These economies are affected by the US through oil and the connection of the Gulf currencies to the US dollar”, financial analyst in Gulf markets Nawaf Al Hajiri told Mubasher.
The Fed’s move came to boost the economy and international trade, and will have a positive effect on capital markets and in particular the financial sector, Al Hajiri added, noting that Gulf central banks’ rate hikes will result in optimism and trust amongst traders, especially foreigners in the regions’ markets.
Some Gulf businesses, especially those working in the export sector, may face challenges in hiring, coinciding with the Fed’s hike, according to Gary Dugan, chief investment officer of Emirates NBD Wealth Management. He highlighted that this decision will lead to a rise in borrowing costs and a decline in margins and companies’ shares values.
He added that domestic and international companies would face difficulties during the first half of 2017 to use any other currency besides the US dollar, noting a likely uptrend for the US currency.
Translated by: Abd El-Rahman Mamdouh
