US Federal Reserve hike leads GCC to follow, but rate paths diverge again

US Federal Reserve hike leads GCC to follow, but rate paths diverge again

Most central banks across the Gulf Cooperation Council (GCC) followed the US Federal Reserve in raising interest rates for the fourth time this year to maintain their currencies’ pegs to the US dollar, although Kuwait and Qatar didn’t match the increase in full. A mismatch between the US, where inflation is running at the hottest pace in four decades, and the economies of the six members of the GCC has created additional room for maneuver for local policy makers who don’t need to act with the same urgency to contain price pressures. But with most regional currencies tethered to the dollar, central banks still largely track Fed decisions. On Wednesday, Saudi Arabia, Bahrain and the United Arab Emirates moved in lockstep with the US central bank and raised their benchmarks by 75 basis points. By contrast, Kuwait, which maintains a peg to a basket of currencies, didn’t deliver the full rate hike and increased its discount rate by 25 basis points only, while Qatar increased its lending rate by 50 basis points. In June, the misalignment with the US already allowed Saudi Arabia and Kuwait to lift rates by less than the Fed’s 75 basis-point move. “Some GCC countries still