The GCC central banks have slashed interest rate after the US Federal Reserve voted to lower interest rate by a half percentage point on Wednesday.
The Federal Reserve slashed its benchmark interest rate by 50 basis points, leaving rates at a range of 4.75% to 5%, after raising its benchmark interest rate 11 times in 16 months and then leaving it unchanged for more than a year.
The US Fed has signalled more reductions will follow. The move is expected to be the first in a series of rate cuts that will extend into 2025.
Shortly after the Fed’s announcement, the UAE Central Bank (CBUAE) said it has decided to cut the base rate applicable to the Overnight Deposit Facility (ODF) by 50 basis points – from 5.40% to 4.90% , effective from Thursday, September 19, 2024.
It has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities.
The Saudi Central Bank said it has decided to reduce the repo rate by 50 basis points to 5.50% and reduce the reverse repo rate by 50 basis points to 5%.
Qatar’s central bank cut key interest rates by 55 basis points. The lending interest rate was cut to 5.70%, the deposit interest rate to 5.20% and the repo rate to 5.45%, according to a central bank statement.
The Central Bank of Bahrain (CBB) also announced its decision to cut the overnight deposit rate by 50 basis points from 6.00% to 5.50%, effective 19th September 2024.
“This decision comes as part of the measures taken by CBB in maintaining monetary and financial stability in the Kingdom of Bahrain in light of global financial market developments,” the apex bank said in a statement.
The Central Bank of Kuwait (CBK) has decided to cut the discount rate by 25 basis points from 4.25% to 4% effective Thursday, September 19. The annual inflation rate in Kuwait has slowed down from 4.71% recorded in April 2022 to 3% in July 2024, Basel Al-Haroon, Governor of the CBK said.
FOMC statement, market reaction
The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance, the Federal Reserve said in an FOMC statement.
The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate, it said.
The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective, the Federal Reserve said.
In a press conference after the announcement, Fed Chairman Jerome Powell said: “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”
The US stocks rallied soon after the announcement. The dollar slipped 0.5% to more than 1-year low.
The interest rate decision came as a boost to the gold market and drove prices to a new high at $2,591.19 per ounce.
(Reporting by Seban Scaria seban.scaria@lseg.com; editing by Daniel Luiz)
