DUBAI: The Gulf’s dollar-pegged economies have followed a US interest rate hike to maintain the value of their currencies but at the risk of denting efforts to stimulate their flagging economies.
Saudi Arabia, UAE, Qatar and Bahrain all raised their key benchmark interest rates by 25 basis points after the move by the US Federal Reserve late on Wednesday.
Only Kuwait, whose dinar is pegged to a broader basket of currencies, held out, as it battles to boost its economy which is forecast by the International Monetary Fund to shrink by 2.1 per cent this year.
The Saudi central bank said it was raising one of its benchmark rates to 1.5 per cent although that was counterbalanced by a government announcement of $19.2 billion (Dh70.46) billion) in stimulus funds for the private sector.
The kingdom reported a negative inflation rate in October and economic forecasts say the region’s largest economy is likely to shrink this year.
The UAE Central Bank raised its benchmark short-term borrowing rate to 1.5 per cent while Bahrain raised its key rate to 1.75 per cent and Qatar raised its to 2.5 per cent.
The Kuwaiti central bank kept its main discount rate at 2.75 per cent. There was no immediate word from Oman.
Raising interest rates is a tool normally used to cool heating economies and check inflation but the Gulf states are suffering from the reverse problem — economic contraction and deflation.
Gulf oil exporters have been hit hard by the slump in world prices for crude, which provided a major part of their finances.
Huge budget deficits have forced them to cut public spending and seek to restructure their economies away from oil.
They have all been keen to boost lending to expand their private sectors.
