by Ahmed Feteha
The central banks of four Gulf Arab oil-exporting countries followed the U.S. Federal Reserve by raising key interest rates on Wednesday, reaffirming their commitment to the dollar peg even as economic growth slows.
The Saudi central bank raised the reverse repo rate by a quarter percentage point to 1 percent while leaving the official repurchase rate unchanged at 2 percent. Policy makers in the United Arab Emirates, Kuwait and Bahrain also raised their key policy rates by 25 basis points.
The monarchies have pegged their currencies to the dollar for decades due to their reliance on oil exports, and typically follow the Fed’s moves. They last raised rates in December. On Wednesday, the Fed continued to project two more increases this year, signaling more vigilance as inflation approaches its target. The prospects of higher U.S. rates has bolstered the dollar in recent months.
The effect of a stronger dollar “will be more visible in the U.A.E. given its bigger exposure to foreign capital flows, trade and tourism,” said Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes. “The impact in other countries, including Saudi Arabia, will not be as spelled out.”