More interest rate rises likely in Gulf after US Fed comments

US Federal Reserve chairman Jerome Powell plans continued interest rate increases, which are normally followed by most countries in the Gulf region
More interest rate rises likely in Gulf after US Fed comments
The US Federal Reserve building.
By Sam Bridge
Sat 25 Aug 2018 12:35 AM

Interest rates are set to rise across the Gulf region if central banks continue to follow the US Fed after its chairman said more rate rises are likely.

Federal Reserve chairman Jerome Powell said the fundamentals of the US economic expansion look strong and support the case for continued gradual interest-rate increases.

US central bankers are raising interest rates gradually to keep inflation in check while at the same time giving the nearly decade-long expansion room to run.

The policy has attracted the ire of President Donald Trump, who told Reuters in a recent interview that he was “not thrilled” with the Fed’s tightening.

“There is good reason to expect that this strong performance will continue,” Powell said. “I believe that this gradual process of normalization remains appropriate.”

Gulf central banks that peg their currency to the dollar - including the UAE and Saudi Arabia - typically follow Fed decisions in lockstep, but Kuwait pegs its dinar to a basket of currencies and chose to sit out the two increases in US rates in 2017 in order to preserve growth and keep down borrowing costs.

In May, Bahrain's central bank Governor Rasheed Al-Maraj said it had enough foreign reserves to maintain its currency’s peg to the US dollar.

In April, Oman central bank governor Tahir Al Amri said the country has the means to maintain its currency peg and has no plans to change it even though the decline in oil prices has hurt its finances.

* With Bloomberg

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