Saudi, Gulf central banks raise interest rates after Fed hike

Central banks in Saudi Arabia and three other GCC states raised key interest rates on Wednesday, following the rate hike by the US Federal Reserve.

The Saudi Arabian Monetary Authority (SAMA) raised the reverse repurchase rate from 75 basis points to 100 basis points with immediate effect, the central bank said in a statement.

“The repo rate remains unchanged at 200 basis points. This move is in line with recent developments in domestic and international financial markets,” SAMA added.

Elsewhere in the region, the United Arab Emirates, Kuwait and Bahrain also hiked key policy rates by 25 basis points, following the Fed rate hike.

“The GCC economies and markets should be able to take in their stride the decision by the Fed to increase interest rates,” Gary Dugan, chief investment officer – wealth management at Emirates NBD, told Argaam.

“Importantly for the region we gauge that the Fed will only increase interest rates further if the pace of growth remains robust. Logical increases in interest rates by the Federal Reserve matched with still robust US growth is something that should not be a major challenge for GCC economies.”

The US Federal Reserve on Wednesday decided to raise the target range for the federal funds rate by 25 basis points to a target range of 0.75 to 1 percent.

The Fed also maintained its outlook for two additional hikes in 2017 and three more next year, according to news reports.

The regulator last increased rates in December to a 0.5-0.75 percent target range, signaling more aggressive monetary tightening for 2017.

The rate hike on Wednesday was in line with analyst expectations ahead of the meeting.

“Markets have clearly gotten the message and are now fully pricing in three hikes this year, in line with our call and the Fed dots,” New York-based J.P. Morgan said last week.

“However, given the rapidly shifting rhetoric of late and continued strong data, we now see the dots shifting higher in next week’s quarterly projections with the median rising to four hikes.”

Meanwhile, London-based Capital Economics said it expects the Fed to raise its policy rate by an above-consensus four times this year, taking the fed funds target range to between 1.5 and 1.75 percent by year-end.

“By end-2018, we expect the fed funds rate to be between 2.50 percent and 2.75 percent,” the consultancy added.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com