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Dubai: lf Arab oil producers cut some interest rates on Thursday in line with a US move, to ward off currency speculation, while Qatar signalled it could raise its benchmark lending rate as the region grapples with inflation.
Dollar pegs in all Gulf states, barring Kuwait, compel their central banks to track the Federal Reserve to maintain the relative value of their currencies, even though inflation is spiralling and their economies are booming.
Yesterday, the UAE Central Bank reduced its overnight repurchase rate - the rate at which banks borrow from the central bank - to two per cent from 2.5 per cent.
Qatar and Bahrain cut their deposit facility and one-week deposit rates, respectively, to two per cent - in line with the US fed funds rate following Wednesday's cut. They both kept lending rates steady at 5.5 and 5.25 per cent, respectively.
Shift
However, in its first such move during the Fed's easing cycle, the Qatar Central Bank said it could lift its benchmark lending facility rate, which stands at 5.5 per cent, "in the future".
"Gulf states are taking the steps they can to dampen the impact of the inappropriate monetary stance that the dollar peg is forcing them into," said Simon Williams, regional economist at HSBC.
"The goal is to moderate liquidity growth without triggering flows onto the currency," he said.
The Saudi central bank, which communicates rate changes only to banks, had made no rate decision.
After seven Fed cuts totalling 3.25 percentage points since September, most Gulf states have cut only deposit rates to maintain the relative value of their currencies.
Meanwhile, they've kept lending rates steady to prevent lower borrowing costs from stoking inflation, which is running at its highest in at least 30 years in Saudi Arabia, a 19-year high in the UAE and just off a record in Qatar.
Gulf central banks have also been raising bank reserve requirements.
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