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Thu 8 Feb 2007 04:58 PM

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Saudi Arabia hikes interest rates

The rise - by 30 basis points TO 5.50% - is the first increase in seven months.

Saudi Arabia's central bank today increased interest rates for the first time in seven months, according to currency traders in Dubai and Riyadh.

The Saudi Arabian Monetary Agency (SAMA) raised the benchmark repo rate and the reverse repo rate by 30 basis points each to 5.50% and 5% respectively, four traders said, citing a memo sent to Saudi banks.

"SAMA did not give a reason for the increase," one Riyadh-based trader, who asked not to be named, told Reuters.

SAMA officials could not immediately be reached for comment on Thursday, a holiday in Saudi Arabia.

News of the last Saudi rate hike in June also first broke among currency traders in Dubai, where Thursday is a working day. SAMA confirmed that move later in the day.

The Saudi riyal, like other currencies in the Gulf Arab region, is pegged to the U.S. dollar and monetary policy usually tracks that of the Federal Reserve. U.S. interest rates stand at 5.25%.

"The riyal is linked to the dollar, so the Saudis tend to follow U.S. rates, but not in step, they are probably a bit behind the curve," Richard Fox, head of Middle East and Africa sovereign ratings at Fitch Ratings, said in London.

"They do have some flexibility in interest rates but not a huge amount. The concern that all the Gulf Arab states have got is that because of their link to a weak dollar, they are importing inflation."

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