Central banks of the UAE, Bahrain, Kuwait, Qatar, and Saudi Arabia have raised their borrowing rates, following the same decision from the US Federal Reserve.
The Federal Reserve announced a consecutive 0.75 percentage point interest rate hike – in a bid to rein in inflation and avoid recession.
In the UAE, the central bank raised its benchmark base rate for its overnight deposit facility (ODF) by 75 basis point.
“The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate,” a statement on WAM said.
It added: “The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates.”
According to central bank data, inflation in the UAE could reach up to 5.6 percent this year. Already in the first quarter, the consumer price index was up 3.4 percent compared with previous quarters.
The Saudi central bank announced a similar decision, raising its repurchase agreement rate by 75 basis points to 3 percent from 2.25 percent, as well as its reverse repurchase agreement rate from 1.75 percent to 2.5 percent.
The US move was the Federal Reserve’s fourth interest rate increase in four months, and its chairman Jerome Powell said any further hike in September would depend on data and hinted at slowing the pace of hikes.
“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” he commented.
The Fed chairman added he did not think the economy was in recession, even though growth was negative in the first quarter.
“Think about what a recession is. It’s a broad-based decline across many industries that’s sustained more than a couple of months. This doesn’t seem like that now,” Powell said.
“The real reason is the labour market has been such a strong signal of economic strength that it makes you question the GDP data.”
Stocks rallied on Wednesday after the announcement and Powell’s comments. The Dow Jones Industrial Average jumped 436.05 points, or nearly 1.4 percent, to 32,197.59. The S&P 500 gained 2.62 percent to close at 4,023.61 and the Nasdaq Composite climbed 4.06 percent to 12,032.42.
Tech shares led gains a day after good quarterly results from Alphabet and Microsoft. It is expected to fall after Meta posted its first quarterly loss results on Thursday.
Shares in the Asia-Pacific region followed suit. The Kospi in South Korea was up 0.66 percent, while the S&P/ASX 200 was 0.43 percent higher in Australia. The Shanghai Composite gained 0.21 percent while the Shenzhen Component was 0.2 percent higher. Japan’s Nikkei 225 was flat.
While the fed funds rate directly impacts what banks charge for short-term loans, it also affects consumer products such as adjustable mortgages, auto loans and credit cards.
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