RIYADH: The Saudi Central Bank, also known as SAMA, has raised its main interest rate by 25 basis points in line with the US Federal Reserve as it seeks to try to counter inflation.
The bank raised its repurchase agreement rate by 25 bps to 5.75 percent, and the rate of reverse repurchase agreement by 25 bps to 5.25 percent.
The move followed the Fed increasing US interest rates by a quarter of a percentage point, the 10th consecutive rise since March 2022.
Most central banks in the Gulf Cooperation Council track the Fed’s policy rate moves as their currencies are pegged to the US dollar, so the announcement from SAMA was immediate.
The Central Bank of the UAE raised its base rate on overnight deposits by 25 bps to 5.15 percent effective from Thursday, the state news agency WAM said.
Central Bank of Bahrain also lifted its key interest rates by 25 bps. Its one-week deposit facility rate was raised from 5.75 percent to 6 percent and the overnight deposit rate to 5.75 percent.
The four-week deposit rate was increased to 6.75 percent, a statement from the bank said.
Qatar Central Bank also increased the lending and deposit rates by 25 bps to 6 percent and 5.50 percent. In addition, the monetary authority hiked the repo rate by 25 bps to 5.70 percent.
The repo rate is the rate at which the central bank gives loans to commercial banks against securities, while the reverse repo is the rate at which the commercial banks lend money to the central bank.
The Fed’s quarter-point interest rate hike follows months of larger increases, with a rise of 25 bps in February, 50 bps in December, and 75 bps in November, September, July and June.
Rising interest rates increase the cost of borrowing for consumers, leading to more expensive mortgage bills and loan repayments — something that can lead to reduced spending on other items as people seek to cut outgoings.
However, savers benefit from the interest rates 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.
