* Saudi Arabia, UAE, Kuwait, Bahrain hike rates
* Qatar, Oman may follow
* Slow economic growth calls for loose policy
* But central banks act to protect their currencies
* Higher oil prices, foreign bond issues aid liquidity
By Andrew Torchia
DUBAI, March 15 Four Gulf central banks raised
interest rates within hours of the U.S. Federal Reserve's rate
hike on Wednesday, pressured by the need to protect their
currencies even though an economic slowdown in the region calls
for loose monetary policy.
Saudi Arabia, the United Arab Emirates, Kuwait and Bahrain
said they were lifting key rates by a quarter of a percentage
point. Commercial bankers think Qatar and Oman may tighten
policy within days.
Growth in the Gulf has slowed sharply in the past couple of
years as low oil prices have forced governments to cut spending
and reduced flows of petrodollars through the banking system.
But all six Gulf states have currencies that are pegged or
closely linked to the U.S. dollar, obliging central banks to
tighten policy along with the United States or risk capital
outflows and downward pressure on their currencies.
Kuwait's central bank raised its discount rate to 2.75
percent on Wednesday to keep the Kuwaiti dinar an attractive
currency for savings in the wake of the U.S. hike, central bank
governor Mohammad al-Hashel said.
Saudi Arabia's central bank adjusted rates in a way which
sought to limit capital flight while avoiding further tightening
of liquidity in the local banking system, which could slow the
It raised its reverse repo rate, the rate at which
commercial banks deposit money with the central bank, to 1.00
percent. But it kept its repo rate, which it uses to lend money
to banks, unchanged at 2.00 percent.
Official interest rates in the Gulf look set to remain under
upward pressure for at least another 18 months, with economists
predicting two more U.S. rate hikes this year and three more in
But initially at least, other factors mean market interest
rates paid by companies and consumers in the Gulf may not rise
sharply. In the last few months, modestly higher oil prices and
big international bond sales have eased pressure on governments'
finances, allowing them to spend a little more freely.
Increased flows of state money through economies have
bolstered banks' deposits, causing interbank money rates to
stabilise or even fall back.
"Stabilising oil prices and international debt issuances
will ease funding pressures" in the region, credit rating agency
Moody's said in a report on Wednesday. It predicted banks in
Qatar and Oman, which have been hit hard by tight liquidity,
would benefit most.
(Reporting by Andrew Torchia; editing by Richard Lough)