US rate hikes: How is the UAE affected?

US rate hikes: How is the UAE affected?

Fed decisions have profound impact on the global economy

The Federal Reserve building in Washington. — KT file

Published: Thu 15 Jun 2023, 7:26 PM

How are the Gulf countries, especially the UAE, affected as the US Federal Reserve on Wednesday paused its rate hike cycle?

The Fed paused its rate hike as inflation in the world’s largest economy continues to cool. However, the US central bank believes that the fight against inflation has a ‘long way to go’, and kept doors open for another two possible rate hikes later this year.

In Europe, the European Central Bank raised rates on Thursday, as inflation, while falling, still remains stubbornly high. However, as the economy in the common currency bloc remains in the doldrums, the central bank has a fine balancing act to play in avoiding a recession while trying to tame prices.

In line with the Fed’s decision, the UAE Central Bank, as well as other central banks in the GCC whose currencies are pegged to the US dollar, have also left their rates unchanged. However, as is the norm, they will follow the US central bank’s rate hikes should the Fed increase its rates later this year.

Decisions made by the Federal Reserve regarding interest rates