Arab News, Sun, May 05, 2024 | Shawwal 26, 1445
Abu Dhabi’s ADQ lists debut $2.5bn bonds on London Stock Exchange
Emirates:
Gulf Cooperation Council central banks have held interest rates steady for the
sixth time as the US Federal Reserve keeps its benchmark level between 5.25
percent and 5.50 percent.
As most currencies in the region are pegged to the
US dollar, monetary policy follows the decisions taken in Washington, with
policymakers opting to lock the rate at the level it has been since July.
The freeze comes as the rate-setting panel cites
“a lack of further progress toward the committee’s 2 percent inflation
objective.”
Vijay Valecha, chief investment officer at Century
Financial, told Arab News: “This decision marks the sixth consecutive time that
the central bank has chosen to keep rates unchanged. Market expectations have
adjusted, now forecasting only one rate cut by year-end compared to the six
anticipated at the beginning of 2024.”
He added: “The monetary policies of most central
banks in the GCC countries, including the UAE, Saudi Arabia, Bahrain, Oman, and
Qatar, typically mirror those of the Fed due to their currencies being pegged to
the US dollar. Kuwait is the exception in the bloc, as its dinar is linked to a
basket of currencies.”
Valecha continued by stating that as a result,
interest rates in GCC markets are also anticipated to remain stable in the near
future, which bodes well for the profitability of GCC banks.
This decision implies that the Saudi Central Bank,
also known as SAMA, will maintain its repo rates at the current level of 6
percent.
The UAE central bank, along with Kuwait, Qatar,
Oman, and Bahrain, also mirrored the Fed’s move.
Repo rates, which represent a form of short-term
borrowing primarily involving government securities, underscore the close
economic ties and financial dynamics between the GCC countries and the global
economic landscape, particularly the US.
The US central bank also stated that it “does not
expect it will be appropriate to reduce the target range until it has gained
greater confidence that inflation is moving sustainably toward 2 percent.”
This indicates that rate cuts are not on the cards
anytime soon, until inflation cools down and moves sustainably toward the 2
percent target set by the US Fed.