Bahrain, UAE, Saudi central banks reduce interest rates

Central banks in the Gulf Cooperation Council (GCC) countries yesterday followed the US Federal Reserve in cutting their benchmark interest rates. Fed Chair Jerome Powell has unveiled a 25-basis-point cut in the rate for the first time in more than a decade under intense pressure from President Donald Trump to stimulate the economy. The central banks in Bahrain, the UAE and Saudi Arabia followed suit by initiating cuts of 25 basis points.

Bahrain cuts lending rate to 4.25pc

The Central Bank of Bahrain (CBB), in a statement, said it has decided to cut its key policy interest rate by 25 basis points.  The CBB reduced its key policy interest rate on the one-week deposit facility from 2.75 per cent to 2.50pc. The top bank also trimmed the overnight deposit rate from 2.50pc to 2.25pc, the onemonth deposit rate from 3.10pc to 2.85pc and the lending rate from 4.50pc to 4.25pc. 

Saudi cuts rate to 275 basis points

Saudi Arabia’s central bank said it had cut key interest rates to preserve monetary stability. It cut its repo rate, used to lend money to banks, to 275 basis points from 300 bps, and the reverse repo, the rate at which commercial banks deposit money with the central bank, by the same margin to 225 bps.

UAE cuts

The United Arab Emirates central bank said it was cutting interest rates applied on the issuance of certificates of deposits starting from August 1. The UAE central bank said its repo rate, for borrowing shortterm liquidity, had been cut by 25 bps, effective yesterday. Since the currencies of Saudi Arabia and UAE are pegged to the US dollar, the central banks there follows the US Federal Reserve on interest rate moves.

Kuwait leaves the rate unchanged

Meanwhile, Kuwait’s central bank decided to maintain its discount rate unchanged at its current level of 3pc. Kuwait’s currency is pegged to a basket of international currencies. The interest rate cut is also expected to reduce the burden on banking customers and enhance spending producing a boost to economies.

The target for the US federal funds rate was lowered to 2.0-2.25 per cent and the central bank again vowed to “act as appropriate to sustain the expansion.” US Fed said it decided on the cut to “insure against downside risks from weak global growth and trade policy uncertainty, to help offset the effects these factors are having on the economy.

“However, Trump -- who had been loudly calling for a rate cut -- wasted no time in attacking on Twitter, saying the move fell far short of the “aggressive rate-cutting cycle” he wanted.