In a coordinated response to Washington’s latest policy shift, several Gulf central banks trimmed their benchmark interest rates by 25 basis points, mirroring the U.S. Federal Reserve’s move to ease borrowing costs for the second time this year.
The Fed’s decision—accompanied by dissent from two policymakers—came with a cautious note from Chair Jerome Powell, who warned that another cut in December was “far from certain.”
For Gulf economies whose currencies are largely tied to the U.S. dollar, the ripple effect was swift. Saudi Arabia reduced its repo rate to 4.50% and its reverse repo to 4%, while the United Arab Emirates lowered its base rate on overnight deposits to 3.9%, effective Thursday. Qatar, Bahrain, and Oman also moved in lockstep, cutting rates by the same margin.
Kuwait, however, broke ranks—keeping its rate unchanged and citing domestic economic stability as the reason. The Kuwaiti dinar, unlike its neighbors’ currencies, is pegged to a basket rather than the dollar alone, allowing slightly greater independence in monetary policy.
The Gulf’s relative insulation from global inflationary pressures gives its policymakers more room to maneuver. The region is banking on cheaper credit to energize non-oil sectors like real estate, tourism, and manufacturing—cornerstones of long-term plans to reduce dependence on hydrocarbons.
With oil prices steady and liquidity strong, the latest rate adjustments are less about firefighting and more about fine-tuning. For Gulf economies in transformation, lower borrowing costs may just be the fuel to keep diversification on track.
