ABU DHABI: The Central Bank of the United Arab Emirates (CBUAE) has decided to increase the base rate applicable to the Overnight Deposit Facility (ODF) by 50 basis points, effective Thursday, May 5, 2022.
The CBUAE has also decided to maintain the rate applicable to the CBUAE’s short-term liquidity loans through all permanent lines of credit at 50 basis points above the Base Rate.
The Base Rate, which is pegged to the US Federal Reserve’s IORB, signals the general monetary policy stance of the CBUAE. It also provides an effective interest rate floor for overnight money market rates.
This decision followed the US Federal Reserve Board’s announcement on Wednesday to raise interest on reserve balances (IORB) by half a percentage point, the biggest jump in 22 years, and said it would start to cut its bond holdings next month as a further step. step in the battle to lower inflation.
The increase in the key Fed rate took it to a range of 0.75 percent to 1 percent, the highest point since the pandemic hit two years ago.
The Fed also announced that it will begin to write down its whopping $9 trillion balance sheet, which consists mostly of Treasury and mortgage bonds. Those holdings more than doubled after the pandemic recession hit when the Fed bought trillions in bonds to try to keep interest rates on long-term loans low. Reducing Fed holdings will have the effect of further raising borrowing costs throughout the economy.
Gulf central banks raise rates
All Gulf countries have their currencies pegged to the US dollar, except Kuwait, which pegs the Kuwaiti dinar to a basket of currencies that includes the dollar.
The central banks of Saudi Arabia, Qatar and Bahrain raised their reference rates by 50 bps. Kuwait’s central bank said it raised its discount rate by 25 basis points (bps) to 2%, in a less aggressive move than the Fed’s.
Kuwait’s central bank said it raised its discount rate by 25 basis points (bps) to 2 percent, in a less aggressive move than the Fed’s. It said it also changed other rates, including on CBK bonds, time deposits and direct intervention instruments, without specifying how much.
The Central Bank of Saudi Arabia (SAMA) raised its repo rate and reverse repo rates by 50 bps each to 1.75% and 1.25%, respectively.
Qatar’s central bank said it would raise its deposit and repo rates by 50 bps, to 1.5% and 1.75%, respectively, from Thursday. Your loan rate will increase by 25 basis points to 2.75 percent.
Bahrain’s central bank also raised its benchmark rates by 50 bps. Bahrain’s central bank said it raised its key policy rate, on its one-week deposit facility, by 50 bps to 1.75 percent, at the same pace as the Fed’s hike.
The CBB also increased its demand deposit rate and lending rates by 50 bps to 1.5 percent and 3 percent, respectively, and its four-week deposit rate was increased by 75 bps to 2.5 percent. hundred.
The Central Bank of Oman, the other member of the Gulf Cooperation Council, is widely expected to follow up with a similar move.
Reference-gulfnews.com