A Wave of Interest Rate Increases in Petro-Dollar Countries

With the decision of the US Federal Reserve (FED) to increase interest rates, there was a wave of interest rate hikes in the Gulf countries. Many countries, especially Saudi Arabia and Qatar, announced that they have decided to increase interest rates.

The decision of the US Federal Reserve (FED) to increase the policy rate by 50 basis points had repercussions all over the world. This choice was followed by the petro-dollar countries, whose currencies are tied to the dollar. Central banks across the Gulf have also opted to raise their benchmark interest rates. The Central Bank of Saudi Arabia increased its repo rate by 50 basis points to 1.75 percent; It also increased its reverse repo rate to 1.25%. Qatar Central Bank increased its deposit rate by 50 basis points to 1.50 percent; It increased the borrowing rate by 25 basis points to 2.75 percent and the repo rate by 50 basis points to 1.75 percent. The Central Bank of the United Arab Emirates also increased its overnight deposit rate by 50 basis points. Fed raises interest rates by 50 basis points The Federal Reserve of the United States increased the policy rate by 50 basis points during its May meeting, as expected. It was the greatest rate increase since 2000 as a result of this decision. It was stated that the balance sheet will be reduced by 47.5 billion dollars per month as of June 1, and a monthly decrease of 95 billion dollars in the next 3 months. In the statement “We are very careful about inflation risks” Fed Chairman Jerome Powell addressed the American people directly following the decision, emphasizing the Fed's responsibility in lowering inflation. Powell made it clear that a 75-basis-point rate increase was not on the table.