By Sarah Townsend
But move will carry limited risks as macroeconomic environment improves, says BMI Research
Qatar could see an increase in interest rates next year as the central bank follows the US in its “gradual tightening cycle” in the coming months, according to new research.
The QCB is likely to follow the US Federal Reserve in its strategy, hiking interest rates by 25 basis points (bps), or 0.25 percent, in 2017, BMI Research said.
The expected increase will bring the policy rate to 4.75 percent in Qatar by the end of 2017.
The report said: “As we forecast Qatari economic growth to pick up in 2017, with business confidence benefiting from the recovery in oil prices, the economy will be able to withstand a small rate hike over the course of the year.”
The hike will be able to moderate a “modest uptick” in inflationary pressures in the coming 12 months, it added. The central bank will follow the Fed as it seeks to limit pressure on the riyal’s dollar peg.
The interest rate hike also carries only limited risks for the economy, as the macroeconomic outlook is expected to improve with oil price recovery next year.
BMI said: “Despite foreign reserves having fallen by 15.9 percent in 2015, Qatar still boasts gargantuan financial buffers, with the import cover ratio estimated at 13.3 months in 2016.
“We do not believe that the QCB will delay its hiking cycle as it did in December 2015, when it did not follow the US Federal Reserve's decision to raise interest rates by 25 bps.”