In a bid to fortify their defense’s against the surging inflation that has cast its shadow across the financial landscape, central banks in the Gulf Cooperation Council (GCC) region have taken decisive action by increasing their key interest rates. This proactive response comes hot on the heels of the US Federal Reserve’s 11th rate hike, signaling an unwavering commitment to taming the inflationary dragon.

The resolute stance of the US central bank reverberated through the financial markets as it delivered the highest policy rate in 22 years. Setting a precedent for further actions, the Federal Open Market Committee (FOMC) of the Federal Reserve expressed its intention to continue assessing economic indicators and their potential impact on monetary policy.

In lockstep with the US, GCC central banks typically adjust their interest rates, given that the currencies of Gulf nations—the UAE dirham, Qatari riyal, Saudi riyal, Omani rial, and Bahraini dinar—are pegged to the US dollar. Reflecting this synchronised approach, the Central Bank of the UAE (CBUAE) announced a 25 basis point (bps) increase in the base rate on its overnight deposit facility, setting it at 5.40 percent, up from 5.15 percent. The decision was firmly anchored to the US Federal Reserve’s interest on reserve balances (IORB) hike, which was made public on July 26th.

Notably, the CBUAE maintained the rate applicable to short-term liquidity borrowing from the central bank through all standing credit facilities at 50 basis points above the base rate, showing prudence and balance in their monetary approach.

The Saudi Central Bank (SAMA) mirrored the GCC-wide sentiment of vigilance against inflation, raising the rate of repurchase agreements (Repo) by 25 bps to 6 percent and the rate of reverse repurchase agreements (Reverse Repo) by 25 bps to 5.50 percent. Echoing this proactive move, the Central Bank of Bahrain also increased its one-week deposit rate to 6.25 percent and its overnight deposit rate to 6 percent. Similarly, the Central Bank of Kuwait (CBK) took decisive action by raising the discount rate by 25 basis points, setting it at 4.25 percent, as part of its overarching strategy to maintain monetary and financial stability while fostering economic growth.

In this dance of measured yet bold moves, GCC central banks stand united in their quest to steer their economies through these challenging times. As they navigate the currents of inflationary pressures, their actions reflect a commitment to safeguarding the economic prosperity of their nations. Amidst the global financial ebb and flow, the GCC central banks, much like skilled helmsmen, steer a steady course, balancing monetary stability with the facilitation of economic growth.

As the winds of economic change continue to blow, the GCC central banks stand tall, weathering the inflationary tempest with resilience and determination. Their coordinated efforts bear testament to the strength of their unity as they forge ahead on their shared quest for financial equilibrium and prosperity in the ever-changing tides of the global economic sea.