GCC interest rates to rise after Fed remarks

The Fed is forecast to raise interest rates at least twice more in 2018, with more to follow in 2019.

According to Powell, the United States’ economic expansion has strong fundamentals that would support the gradual rate hikes.

Even though the economy appears up to it, US President Donald Trump recently criticised the Fed’s monetary policy, saying he was “not thrilled” with the rate increases.

"There is good reason to expect that this strong performance will continue,” Powell said, adding that he believed that “this gradual process of normalisation remains appropriate.”

Central banks across the GCC, which peg their currencies against the US dollar, tend to follow the Fed with rate hikes. However, an exception to the group was Kuwait in 2017, which did not raise its interest rates twice like the Fed, citing the need to maintain its growth momentum and reduce borrowing costs.

Saudi Arabia and the UAE, on the other hand, have increased their rates as soon as the Fed did.

In May, Rasheed Al-Maraj, governor of the Central Bank of Bahrain (CBB), said that the bank had sufficient foreign reserves to maintain the Bahraini dinar’s peg to the US dollar. A month before that, Oman’s central bank governor Tahir Al Amri made a similar statement, noting that his country had no plans to change the peg even if the oil price fall had hurt its finances.