Most Gulf central banks follow Fed lead and hike key interest rates

Most central banks of the Gulf Cooperation Council countries increased key interest rates on Wednesday, following the U.S. Federal Reserve's decision to hike by a quarter of a percentage point.

The Gulf's oil and gas exporters generally follow the Fed's lead on rate moves as most regional currencies are pegged to the U.S. dollar. Only the Kuwaiti dinar is pegged to a basket of currencies, which includes the dollar.

Saudi Arabia, the region's biggest economy and world's largest oil producer, raised its repurchase agreement (repo) rate by 25 basis points to 4.50% and its reverse repo rate also by 25 bps to 4.00%. The country has suffered several attacks in recent weeks as the conflict flared up with attacks from Yemen's Iran-aligned Houthis.

The United Arab Emirates also said it would raise the base rate on its overnight deposit facility by 25 basis points to 3.9%, while the central bank of Oman raised the repo rate by 25 basis points to 4.5%.

In both Qatar and Bahrain, the central banks hiked key interest rates by 25 basis points.

The Central Bank of Kuwait left rates unchanged and said in a separate statement that current data reflected "the soundness and strength of the monetary and financial stability" in the country.

While U.S. President Donald Trump had promised to lower prices on his watch, the combined impact of his global import tariffs, an energy shock following the Iran war, and capital spending from the AI boom has kept up price pressures. The Fed responded by raising its benchmark rate by a quarter of a percentage point to 3.75%-4.00%.

Most Gulf economies will contract more sharply this year than previously expected before rebounding in 2027, a Reuters poll found in July, as the Iran war brought disruption to energy shipments with the effective closure of the Strait of Hormuz, damage to energy production facilities and reduced traffic that impacted tourism and business flowing through the region.