Wednesday, March 15, 2017

Kuwait, UAE hike rates as they track U.S. rate hike

    The central banks of Kuwait and the United Arab Emirates (UAE) were quick off the mark in raising their benchmark interest rates following a 25-basis point rate hike by the U.S. Federal Reserve.
    Five of the six members of the Gulf Cooperation Council (GCC), a regional political and economic grouping of oil exporters, peg their currencies to the U.S. dollar and normally adjust their key interest rates in sync with that of the Fed.
    Kuwait's dinar is pegged to a weighted based of currencies, including both the dollar and the euro.
    The Hong Kong Monetary Authority (HKMA) also pegs its dollar to the U.S. dollar and also tracks  U.S. rate changes.
    In addition to Kuwait (CBK) and the UAE, the GCC includes Saudi Arabia, Bahrain, Oman and Qatar. In December last year, when the Fed raised its rate for the second time since the global financial crises in 2008-2009, all GCC members quickly raised their rates, except for Oman.
    The Central Bank of Kuwait (CBK) said in statement that it had raised its discount rate by 25 basis points to 2.75 percent as of March 16, to "maintain the competitive and attractive returns on domestic KD savings compared with those of the major International currencies, particularly after the announcement by the US Federal Reserve to raise the interest rates as of March 15, 2017."
    The Central Bank of the UAE (CBUAE) said in its statement that it would raise the rates on its certificates of deposit by 25 basis points "in line with the increase in interest rates on US dollar, following the Federal Reserve Board's decision to increase the Federal Funds rate by 25 basis points at its meeting of today."
    The CBUAE's deposit rate will be raised to 1.75 percent as of March 16 while the repo rate will be raised by 25 basis points to 1.25 percent.



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