Fed to the Rescue as Gulf Central Banks Get to Cut Rates at Last
Fed to the Rescue as Gulf Central Banks Get to Cut Rates at Last
(Bloomberg) -- More than four years after the oil-price crash, Gulf Arab policy makers can finally count on support from the Federal Reserve to add fuel to their fragile economic recovery.
Central banks in Saudi Arabia, the United Arab Emirates, Qatar and Bahrain cut their benchmark interest rates by 25 basis points following a similar decision by the Fed on Wednesday. Kuwait kept its discount rate unchanged at 3%.
Gulf central banks largely move in lockstep with the U.S. to protect their currencies’ peg to the dollar. But as the Fed raised rates nine times since 2015, they were unable to lower borrowing costs to help weather the effect of lower oil prices on their economies.
The Gulf will “go with the flow,” BNP Paribas SA economists Marcelo Carvalho and Luiz Eduardo Peixoto said in a report. “We foresee rate cuts synchronized with the Fed in most places, including Saudi Arabia, the U.A.E., Bahrain and Oman.”
| What Our Economists Say... |
|---|
“Monetary easing, although small, is timely and will give the region’s economies a helpful boost as growth has yet to recover from the 2014 oil price decline.” --Ziad Daoud, Mideast economist Click here to view the piece. |
Kuwait’s central bank, which maintains a peg to a basket of currencies, said it skipped lowering rates to balance between the need to promote economic growth and ensure the dinar remains attractive for savings. Kuwait raised its key rate only four times since 2015.
--With assistance from Simone Foxman.
To contact the reporter on this story: Vivian Nereim in Riyadh at vnereim@bloomberg.net
To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Alaa Shahine, Paul Abelsky
©2019 Bloomberg L.P.