Central banks across the Gulf have cut borrowing costs following the US Fed's unexpected move to lower its benchmark interest rate to near zero
Central banks across the Gulf cut borrowing costs to bolster already unveiled fiscal stimulus, following the US Federal Reserve’s unexpected move to lower its benchmark interest rate to near zero to counter the economic fallout of the coronavirus contagion.
As the spreading outbreak paralyzes commerce and tourism, local economies are also having to contend with the crash in oil prices and the threat it presents to budgets and investment.
With Gulf currencies tethered to the dollar, central banks generally track Fed rate decisions.
Kuwait, which alone maintains a peg to a basket of currencies, matched the Fed’s move by reducing its discount rate by a full percentage point to an all-time low of 1.5 percent.
The central bank of the United Arab Emirates cut the rate on one-week certificates of deposit by 75 basis points. The Saudi Arabian Monetary Authority also lowered its repo rate by 75 basis points to 1 percent, and its reverse repo rate by the same amount to 0.5 percent.
Bahrain cut its policy rate by 75 basis points. The central bank of Oman, one of the Gulf’s weakest economies, has yet to make an announcement.
But with the US likely out of space for further rate cuts, the burden of cushioning economies in the Gulf will fall on budgets stretched by the biggest oil-price collapse in a generation.
Fed officials dislike the idea of negative rates and Fed Chair Jerome Powell again dismissed it at his press conference on Sunday.