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27-09-22

UAE, GCC central banks prepares to raise interest rates in line with US fed

(MENAFN) Borrowing cost is preparing to see a surge in the UAE and other Gulf nations in the approaching week as the US Federal Reserve is estimated to rise rates by 75 bps once more.

Since the UAE and more GCC nations’ currencies are attached to the US dollar, regional central banks move in line with the Fed to raise the rates and vice-versa.

The UAE had surged the base rate appropriate to the instant deposit facility by 75 basis points two months ago in line with the Fed’s rate hike in the same month (July).

After the higher-than-estimated inflation figures on Tuesday, the Federal Reserve is going to hike the Fed Funds goal rate by 75bp to 3.25-3.50 percent at Wednesday’s gathering, as stated by James Swanston, economist for the Middle East and North Africa at Capital Economics.

According to Swanston, “Gulf central banks, by virtue of their dollar pegs, will follow suit. The so-called ‘impossible trinity’ means that, because of the commitment to fixed exchange rates and the free movement of capital across borders, interest rates in the Gulf must follow those in the US. Further ahead, we think the Fed will tighten policy by at least a further 75bp by year-end, but as we’ve noted before, oil prices rather than interest rates tend to be the main driver of credit growth in the Gulf.”

Swanston continued: “We also hold a non-consensus view that the Central Bank of Egypt will resume its tightening cycle.”

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