Saudi Arabia’s central bank, the Saudi Central Bank (SAMA), has reduced its benchmark interest rate to 5%, marking the third cut this year. This move aligns with the U.S. Federal Reserve’s recent 25-basis-point rate reduction.
SAMA lowered the repurchase agreement rate to 5% and the reverse repurchase rate to 4.5%, aiming to ensure monetary stability amidst evolving global economic conditions. “This decision is in line with SAMA’s mandate of preserving monetary stability in the context of global developments,” the bank said.
The rate cut reflects easing inflationary pressures and follows a 50-basis-point reduction in September. The decision is expected to lower borrowing costs, offering relief after two years of elevated rates.
Gulf Cooperation Council (GCC) central banks, whose currencies are mostly pegged to the dollar, also mirrored the Fed’s move. The UAE, Oman, Qatar, and Bahrain all implemented rate cuts ranging from 25 to 30 basis points. Kuwait, taking a gradual approach, reduced its discount rate to 4%.
Economist Mahmoud Khairy noted, “Syncing with the U.S. Fed helps GCC economies manage inflation and support growth by lowering borrowing costs.” However, he highlighted challenges in balancing economic needs with maintaining currency pegs, especially as inflation in Saudi Arabia is driven by housing prices.
The U.S. Federal Reserve’s aggressive rate hikes over the past two years aimed to curb inflation. While U.S. inflation nears the Fed’s 2% target, it remains slightly elevated, burdening consumers with high costs.