GCC Central Banks Follow US Fed with Interest Rate Cuts to Support Economic Growth

UAE, 8 November, 2024 : Central banks across the Gulf Cooperation Council (GCC) have lowered interest rates by 25 basis points, aligning with the U.S. Federal Reserve's recent cut. The Fed reduced its federal funds rate by 25 basis points to a range of 4.5%-4.75%, marking its second cut this year as inflation eases near the 2% target. GCC central banks, whose currencies are largely pegged to the dollar, typically follow the Fed's lead on rate changes.

The Central Bank of the UAE (CBUAE) reduced its base rate for the Overnight Deposit Facility to 4.65% and maintained a 50-basis-point margin for borrowing short-term liquidity. Similarly, Saudi Arabia's central bank cut its repo rate to 5.25% and reverse repo rate to 4.75%.

In Bahrain, the Central Bank trimmed the overnight deposit rate by 25 basis points to 5.25%, effective November 10. Qatar's central bank also reduced rates, including a 30-basis-point cut to its deposit rate, which now stands at 4.90%.

Lower rates could boost sectors sensitive to credit, such as real estate and consumer spending, potentially bolstering economic resilience across the GCC. Vijay Valecha, CIO at Century Financial, noted that the UAE’s robust economic fundamentals position it well to absorb higher rates, benefiting its banking sector through wider interest margins.

Market projections show a 70% probability of an additional Fed rate cut in December, with expectations for further reductions to bring the benchmark rate to 3.75%-4.00% by the end of 2025.

Source : www.zawya.com