DUBAI (Reuters) — Most central banks across the Gulf Cooperation Council (GCC) reduced their key interest rates on Wednesday, aligning with the U.S. Federal Reserve’s decision to lower the federal funds rate by 25 basis points (bps).
The Federal Reserve’s new target range of 4.25% to 4.5% reflects its cautious approach to managing inflation and unemployment. The move prompted Gulf economies—whose currencies are largely pegged to the U.S. dollar—to follow suit in adjusting their monetary policies.
Saudi Arabia and UAE Lead Regional Rate Cuts
Saudi Arabia, the GCC’s largest economy, reduced its repurchase agreement (repo) rate and reverse repo rate by 25 bps each, bringing them to 5% and 4.5%, respectively. Similarly, the United Arab Emirates (UAE) lowered its base rate on the overnight deposit facility to 4.40%.
These adjustments are expected to ease borrowing costs and maintain economic stability, particularly in the UAE, which has prioritized ambitious economic diversification initiatives to reduce reliance on oil revenues.
Other GCC Countries Respond
Other GCC nations also adjusted their rates:
- Oman: The central bank reduced its repo rate by 25 bps to 5%, according to the state news agency.
- Qatar: Qatar implemented a slightly deeper cut of 30 bps across its three main interest rates, reflecting a tailored approach to local economic conditions.
- Bahrain: Bahrain reduced its overnight deposit rate by 25 bps to 5%.
- Kuwait: Unique in pegging its currency to a basket rather than the dollar alone, Kuwait cut its discount rate by 25 bps to 4%, effective September 19.
Balancing Growth and Inflation
The GCC economies have largely been shielded from the high inflation seen in other regions, thanks to controlled fuel prices and robust fiscal policies. However, the rate cuts aim to bolster non-oil growth through increased borrowing and investment opportunities.
Despite the rate reductions, Gulf central banks remain cautious. The region’s emphasis on economic diversification—through initiatives such as Saudi Vision 2030 and the UAE’s National Agenda—has mitigated the impact of global economic fluctuations.
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