Gulf central banks lower interest rate following the US
The central banks of Saudi Arabia, Bahrain and the UAE announced a decrease in the discount rate in their countries by 0.5%, thereby responding to the reduction in the discount rate by the US Federal Reserve by 0.5%, carried out the day before.
Also, the central bank of Hong Kong lowered the discount rate by 0.5%. Central banks in Malaysia and Australia cut interest rates by 0.25%.
At an unscheduled meeting on March 15, the US Federal Reserve System urgently cut its base interest rate to protect the economy from the effects of the COVID-19 coronavirus pandemic. The rate has been reduced by one percentage point – to the target range of 0-0.25%. The FED expects to keep the rate at this level “until it is sure that the economy has survived the latest events.”
Gulf central banks generally track US interest rates since all currencies except Kuwait are pegged to the dollar. Although the Kuwaiti dinar is tied to a basket of currencies, the dollar dominates the basket of currencies with a weight of about 80 percent.
The UAE Central Bank lowered the interest rate on one-week certificates of deposit by 75 basis points and decided to maintain the repo rate applicable for borrowing short-term liquidity from CBUAE under CDs, 50 basis points above the one-week CD rate.
The last round of interest rate cuts has followed stimulus packages launched by central banks in Saudi Arabia, Qatar and the UAE over the past few days.
While the UAE Central Bank announced incentives of 100 billion dirhams, Saudi Arabia announced a set of economic incentives worth 50 billion riyals.