GCC Central Banks Reduce Rates by 25 Basis Points

On Wednesday, the central banks of the Gulf Cooperation Council (GCC) countries announced a reduction in their main interest rates by 25 basis points, in a synchronized move with the US Federal Reserve's decision to lower its rate to a range of 4.25%-4.5%. The coordinated Gulf action reflects the monetary policy linked to the US dollar, as most currencies in the region are pegged to the American currency, except for the Kuwaiti dinar, which is linked to a basket of currencies.

At the country level, the Saudi Central Bank (SAMA) reduced the repo rate to 4.25% and the reverse repo rate to 3.75%. Meanwhile, the UAE Central Bank lowered the overnight deposit facility rate to 3.65% effective Thursday. In Qatar, the central bank cut the deposit rate to 3.85%, the lending rate to 4.35%, and the repo rate to 4.10%. The Kuwaiti Central Bank reduced the discount rate to 3.50%, while the Bahrain Central Bank lowered the overnight deposit rate from 4.50% to 4.25%.

This rate cut comes amid expectations that lower interest rates will support non-oil economic growth in the region, particularly in sectors sensitive to financing such as real estate, manufacturing, and tourism. The Gulf countries are currently seeking to implement ambitious plans to diversify their economies away from oil, which requires billions of dollars in investments and financing that could benefit from a low-interest-rate environment.