Bahrain cut its key interest rates by 50 basis points on Monday, joining other Gulf Arab states in seeking to relieve appreciation pressure on its dollar-pegged currency.
The Bahrain central bank reduced its benchmark one-week deposit rate to 4.25% from 4.75% and its overnight deposit rate to 3.75% from 4.25%, the central bank said.
The bank reversed half-percentage-point rate cuts earlier on Monday in its overnight repurchase and secured rates, without giving a reason.
Investors have been piling into Gulf currencies – especially the Saudi riyal and UAE dirham – betting Gulf Arab states could either drop their dollar pegs or allow their currencies to appreciate as the dollar’s rapid fall stokes import price inflation.
The UAE cut some interest rates on Thursday and Saudi Arabia on Saturday to make holding their currencies less attractive.
“Gulf countries are acting in unison to combat currency speculation, which is something all of them do not want,” said John Sfakianakis, chief economist at SABB bank, HSBC Holding’s affiliate in Saudi Arabia.
Investors are betting on an appreciation of as much as 1.2% in the Bahrain dinar in a year, according to forward rates on Monday.
UAE Central Bank Governor Sultan Nasser Al-Suweidi said on November 15 he was under mounting social and economic pressure to drop the dirham’s peg to contain inflation. He said he would move only in conjunction with other Gulf oil producers. (Reuters)
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