Central banks in the GCC raised interest rates on Wednesday night following the US Federal Reserve's decision to raise benchmark overnight interest rate by one quarter of a percentage point, taking the federal funds rate to a target range between 5.25% and 5.50%.

The Central Bank of UAE raised its base rate on overnight deposits by 25 basis points (bps) to 5.40% from 5.15% effective from Thursday, it said in a late night statement.

Most central banks in the GCC usually track the Fed's policy rate moves as their currencies are pegged to the US dollar. This is the 11th hike in the US monetary authority's battle to tackle elevated inflation.

The GCC region, which saw inflation averaging 3.6% in 2022, according to IMF estimates, is expected to see inflationary pressure soften further to 2.7% on average this year due to the effect of the previous rate hikes and slowing global growth.

Meanwhile, the Saudi Central Bank, known as SAMA, raised its repo and reverse repo rates by 25 bps to 6% and 5.50%, respectively.

Bahrain's central bank also lifted its key interest rates by 25 bps. Its one-week deposit facility rate was raised from 6% to 6.25% and the overnight deposit rate to 6% from 5.75%. However, the bank maintained the four-week deposit rate at 6.75% and the lending rates at 7%.

The central bank of Qatar also increased the lending by 25 bps to 6.25% from 6%. The bank raised the deposit rates by 25 bps to 5.75%. The monetary authority also hiked the repo rate by 25 bps to 6%.

The Central Bank of Kuwait (CBK) also decided to raise the discount rate by 25 bps to 4.25% from 4%, the first time in months it has tracked the Fed move on interest rates.

(Reporting by Brinda Darasha; editing by Mily Chakrabarty)