Saudi Central Bank raises repo and reverse-repo rates by 25 basis points

The Saudi Central Bank raised its repurchase agreement rate by 25 basis points to 4.50% on 16 September. It also raised the reverse repurchase agreement rate by 25 basis points to 4.00%. SAMA said the decision was consistent with its mandate to preserve monetary stability.

The move followed a 25-basis-point increase by the US Federal Reserve. Reuters reported that the United Arab Emirates, Qatar, Bahrain and Oman also increased key rates by 25 basis points after the US decision, while Kuwait held.

POLICY RATES FOLLOWED THE FEDERAL RESERVE

Repo operations provide short-term liquidity to banks against eligible collateral. By raising its repo rate, SAMA increased the policy cost attached to those transactions. The reverse-repo change also lifted the rate applied when eligible counterparties place excess liquidity with the central bank.

Saudi Arabia matched the scale of the Federal Reserve’s increase, although absolute policy settings differed across Gulf markets. Reuters reported that the UAE’s overnight deposit facility rate rose to 3.90%, while Oman’s repo rate reached 4.50%. Qatar also raised key policy rates by 25 basis points.

BANK FUNDING AND PRICING IMPLICATIONS

Abdullah Almeer, an economist at King Fahd University of Petroleum & Minerals, told Arab News that because commercial lending rates are linked to interbank rates such as SIBOR, businesses and households may face higher financing costs.

Saudi Arabia and most of its Gulf peers generally move policy rates in tandem with the Fed because their currencies are pegged to the US dollar.