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  • 26-03-23

    Saudi Central Bank Raises Interest Rates Following US Fed's Move to Curb Inflation

    (MENAFN) The Saudi Central Bank, also known as SAMA, has increased its interest rate by 25 basis points to 5.5 percent, following a similar move by the US Federal Reserve to curb inflation. SAMA's Reverse Repo rate has also increased to 5 percent. While inflation is still on the rise in Saudi Arabia, the annual rate eased to 3 percent in February, down from 3.4 percent the previous month. The US Fed's decision to hike interest rates was driven by its desire to lower high inflation, which played a part in driving the monetary policy of the Gulf region, as most of the region's currencies are pegged to the dollar.

    Following the US Fed's decision, regional central banks also raised their interest rates. The UAE's central bank increased its base rate to 4.9 percent, effective from Thursday. Bahrain also raised its main rate by 25 basis points, with its one-week deposit facility rate rising to 5.75 percent, while the overnight deposit rate hit 5.5 percent. Qatar's central bank increased its lending and deposit rates to 5.75 percent and 5.25 percent respectively, after keeping them unchanged last month.

    Inflation in the GCC region is higher than it was in almost 10 years, but still lower than numerous western countries, ranging between 5 percent and 6 percent last year. Despite recent signs of a slowdown in the US economy, prices are running at their highest level since the early 1980s. Rising interest rates increase the cost of borrowing for consumers, leading to more expensive mortgage bills and loan repayments, which can lead to reduced spending on other items as people try to reduce costs.

    However, savers benefit from the interest rate rise, with money stored away gaining a greater return. Yet, with inflation across the globe still running hot, any extra interest gained by savings is lower than the rising cost of goods and services. The decision by SAMA to raise interest rates is aimed at curbing inflation and maintaining a stable economy. The move is expected to impact borrowing costs for consumers and businesses, while also affecting the returns on investments and savings.

    The increase in interest rates by central banks in the Gulf region is seen as a response to the US Fed's decision to raise rates to control inflation. Since most of the region's currencies are pegged to the dollar, any move by the US Fed has a significant impact on the monetary policy of the Gulf countries. While the inflation rate in Saudi Arabia has eased slightly, it remains a concern for policymakers, who are taking steps to control it through monetary and fiscal measures. Overall, the move to increase interest rates is aimed at balancing the needs of borrowers and savers, while also maintaining a stable economy in the face of rising inflation.

    MENAFN26032023000045014228ID1105862043

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