RIYADH: Saudi Arabia’s central bank lowered its benchmark interest rate to 5 percent, its third cut this year, aligning with the US Federal Reserve’s decision to reduce rates by 25 basis points. 

The institution, also known as SAMA, cut its repurchase agreement rate to 5 percent and the reverse repurchase agreement rate to 4.5 percent, it said in a statement. The move is aimed at maintaining monetary stability amid shifting global economic conditions. 

The move aligns with the US Federal Reserve decision, which similarly cut rates by 25 basis points, bringing its target range to between 4.25 percent and 4.5 percent. 

“This decision is in line with SAMA’s mandate of preserving monetary stability in the context of global developments,” SAMA said. 

The reduction follows a more aggressive 50-basis-point cut in September and reflects a recalibration of policy as inflationary pressures ease. The move is expected to lower borrowing costs, providing relief after two years of elevated rates designed to curb inflation.  

Central banks across the Gulf Cooperation Council, whose currencies are largely pegged to the dollar, mirrored the Fed’s move despite relatively stable inflation levels in the region. 

The UAE cut its overnight deposit facility rate by 25 basis points to 4.4 percent, while Oman trimmed its repo rate by the same margin to 5 percent. Qatar opted for a slightly deeper reduction, lowering its three main rates by 30 basis points. Bahrain reduced its overnight deposit rate by 25 basis points to 5 percent. 

In a separate statement, the Central Bank of Kuwait announced on Wednesday that it had adopted a “gradual and balanced approach” to monetary policy, reducing its discount rate by 25 basis points to 4 percent, effective Sept. 19. 

Commenting on the GCC banks’ move, Mahmoud Khairy, an economist and policy adviser, told Arab News: “This strategy of syncing with the US Fed helps GCC economies manage inflation and support economic growth by reducing borrowing costs.”

He, however, said the strategy depends on the US economic policy landscape. “If the US shifts toward monetary easing, GCC central banks might face challenges in balancing their own economic needs with maintaining currency pegs and investor confidence,” Khairy explained.

He was of the view that GCC countries must align their interest rates with the Fed to sustain investment inflows. However, this poses challenges for nations like Saudi Arabia, where inflationary pressures are driven by housing prices and demand, thus making it difficult to keep inflation low, he added.

Over the past two years, the US Federal Reserve has aggressively raised interest rates to combat inflation, significantly tightening monetary policy to stabilize prices. 

Although inflation in the US has edged closer to the Fed’s 2 percent target, it remains slightly elevated, leaving consumers burdened by high costs.