By: Mahmoud Gamal

Mubasher: Three GCC central banks have raised their interest rates following the US Federal Reserve’s interest-rate hike.

On Wednesday, the Fed voted to raise interest rates for the third time this year by 25 basis points to a range of 2% to 2.25%.

Many analysts and investors projected the US central bank to increase interest rates after robust economic data had recently released by American officials.

Accordingly, the Saudi Arabian Monetary Authority (SAMA) decided to raise its rates of the reverse repurchase agreements by 25 basis points to 2.50% from 2.25%.

The Central Bank of the UAE also announced raising key interest rates by 25 basis points as of Thursday, 27 September.

Moreover, the Central Bank of Bahrain raised key interest rates by 25 basis points to 2.50% from 2.25%.

On the other hand, the Central Bank of Kuwait (CBK) maintained its interest rate unchanged, whereas the Omani and Qatari central banks did not reveal any decisions regarding interest rates.

Raising interest rates proves improvements in the US economy, especially after official data showed solid economic growth, economist Ali Al Hamoudi told Mubasher.

The rate hike decision will positively impact vital sectors in the GCC countries, such as the banks, while it will negatively affect other sectors, including the real estate sector, Al Hamoudi indicated.

 

Banks

The interest-rate hike will boost the banks’ margin profits, which will be reflected consequently on the operation of these lenders, the economist added.

He explained that Islamic banks will also react to the Fed’s decision by raising interest rates on loans only, but not on deposits, while traditional banks are likely to raise rates on both lending and deposits.

 

Real estate and tourism

The real estate sector, one of the biggest economic sectors in the GCC region, is likely to be harmed in view of the increasing costs of projects, which may cause a recession, Al Hamoudi said.

Major Gulf countries, such as the UAE and Saudi Arabia, need to conduct serious studies and issue government decisions to revive the real estate sector as it is one of the pillars of these countries’ economies, he added.

He projected that costs of all types of tourism in the region, particularly medical tourism, which attracts countries that are not linked to the US dollar.

 Any hike in the US dollar rate will also affect the tourism industry in the region, he pointed out.

 

Industry and export

Al Hamoudi also noted that the position and competitiveness of industrial and exports firms in the GCC region will be affected due to higher costs resulted from the continuous rise of the dollar rate.

Small- and medium-sized enterprises that depend on banks in strengthening their capital should find a possible solution to overcome this obstacle in the future amid the continued hike in interest rate, he said.

 

Translated by: Mai Ezz El-Din