UAE, GCC central banks likely to hike interest rates again in the coming week

UAE, GCC central banks likely to hike interest rates again in the coming week

Following stronger-than-expected inflation data, the US Federal Reserve will raise the Fed Funds target rate by 75bp

Published: Sun 18 Sep 2022, 5:39 PM Last updated: Sun 18 Sep 2022, 5:57 PM

Borrowing cost is set to rise in the UAE and other Gulf countries in the coming week as the US Federal Reserve is expected to hike rates by 75 bps yet again.

Since the UAE and other GCC countries’ currencies are pegged to the US dollar, regional central banks follow the Fed to increase the rates and vice-versa. The UAE had hiked the base rate applicable to the overnight deposit facility by 75 basis points in July after the Fed’s rate hike.

Following the stronger-than-expected inflation data on Tuesday, the Federal Reserve will raise the Fed Funds target rate by 75bp to 3.25-3.50 per cent at Wednesday’s meeting, says James Swanston, economist for the Middle East and North Africa at Capital Economics.

“Gulf central banks, by virtue of their dollar pegs, will follow suit. The so-called ‘impossible trinity’ means that, because of the commitment to fixed exchange rates and the free movement of capital across borders, interest rates in the Gulf must follow those in the US. Further ahead, we think the Fed