Saudi fintech firm Raqamyah receives SAMA license to offer crowdlending solutions

RIYADH: The Saudi central bank has raised its interest rate by 25 basis points to 5.25 percent, echoing Wednesday’s move by the US Federal Reserve to curb inflation.

A statement from the bank, also known as SAMA, noted that its reverse repo rate has also increased to 4.75 percent.

Inflation is on the rise in the Kingdom, and the annual rate rises to 3.3 per cent in December, up from 2.9 per cent in November.

The Fed’s quarter-point interest rate hike follows months of larger increases, when it increased 50 basis points in December and 75 basis points in November, September, July and June.

Despite recent signs of a slowdown in the US economy, prices are at their highest level since the early 1980s.

Rising interest rates raise the cost of borrowing for consumers, leading to more expensive mortgage bills and loan repayments – which can lead to reduced spending on other items as people try to cut costs.

However, savers benefit from the rise in interest rates, where money that is saved gets a greater return. Yet, with inflation across the globe still high, any extra interest earned from savings is lower than the rising costs of goods and services.

While the US central bank’s decision was driven by the desire to lower high inflation, this played a role in driving the Gulf region’s monetary policy, as most of the region’s currencies are pegged to the dollar.

After the US central bank’s decision, regional central banks also started to raise interest rates – although Qatar chose to hold.

The Central Bank of the United Arab Emirates raised its base rate to 4.65 percent, effective Thursday, while the Central Bank of Oman raised its repo rate to 5.25 percent.

Bahrain also raised its prime rate by 25 basis points, with the one-week deposit facility rate rising to 5.5 percent, while the overnight deposit rate reached 5.25 percent.

Qatar’s central bank said in a press release on Wednesday that it will keep interest rates unchanged, keeping the deposit rate at 5 percent, the lending rate at 5.5 percent and the repo rate at 5.25 percent.

Since the country was predicted to mirror the Fed in early 2023 by credit rating agency Fitch in a report last month, this decision came as a bit of a surprise.

The Central Bank of Kuwait, which raised interest rates by 50 basis points last month, often acts separately and does not necessarily follow the Fed’s hikes.

In addition, Egypt’s central bank is forecast to raise its overnight interest rates by 150 basis points at its regular monetary policy committee meeting on Thursday, a Reuters poll showed last Monday.

The CBE raised its interest rates by an unprecedented 800 basis points in the past year alone and has been involved in a constant series of currency devaluations.

A poll of 13 analysts expected the bank to raise the deposit rate to 17.75 percent and the lending rate to 18.75 percent.