The cost of mortgages in Saudi Arabia, the UAE and Bahrain are set to rise this week following the decision in the US Federal Reserve’s interest-rate increase for the first time since 2015. Kuwait refrained from following the US rate move, citing “modest” economic growth in the Gulf country hit by lower oil prices.
The central bank left the discount rate at 2.75 percent, according to a statement. Saudi Arabia, the UAE and Bahrain mirrored the Fed’s decision, raising their key rates by quarter of a percentage point. Kuwait pegs the dinar to a basket of currencies believed to be dominated by the dollar, while other members of the six-nation Gulf Cooperation Council are pegged to the greenback.
Kuwait central bank Governor Mohammed Yousif Al-Hashel said the decision reflected the “limited economic growth and the continued increase of interest rates on the US dollar and all the challenges that entails.” The central bank, he said, was also deploying other tools to “boost the attractiveness” of the dinar as a currency for local savings.
Gulf Arab countries are struggling to bolster economic growth as oil prices fall and a strong dollar hurts industries such as tourism. Countries that have a wide interest-rate gap with the Fed “will look to keep benchmark lending rates on hold,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Saudi Arabia’s central bank raised its reverse repurchase rate by 25 basis points to 1.25 percent while keeping the repo rate unchanged at 2 percent
“With a lackluster growth environment, the region doesn’t need higher interest rates,” Malik said. Kuwait has raised its key rate by 75 basis points since the Fed started increasing its borrowing costs in December 2015.