RIYADH: The Saudi Central Bank has increased its Repo rate by 75 basis points to 4.50 percent, as the US Federal Reserve raised rates by 75 basis points on Wednesday to curb inflation. 

A statement from the bank, also known as SAMA, noted its Reverse Repo rate has also increased to 4 percent. 

While the US Central Bank’s decision to raise interest rates was motivated by its desire to lower high inflation, this played a part in driving the Gulf region’s monetary policy, as most of the region’s currencies are pegged to the dollar. 

Following the US Fed’s decision, regional central banks also swung into action to raise their interest rates, with the UAE increasing its base rate to 3.9 percent, effective on Thursday. 

Bahrain also raised its main rate by 75 basis points while Qatar increased rates by between 50 and 75 basis points.

Meanwhile, credit rating agency Fitch said that Saudi banks are likely to require further liquidity injections from central banks after interbank spreads rose sharply in October, with lending growth continuing to outpace deposit growth. 

Sector loans have increased by 12.9 percent in the Kingdom during the first nine months of 2022, compared with 8 percent of deposits. This led the Fitch-calculated loans/deposits ratio for Saudi banks collectively to rise to 102.2 percent, its highest level in at least 15 years.

“Without liquidity support, lending growth could decelerate in 2023, despite strong credit demand with corporate and retail loans up 13.5 percent and 11.4 percent, respectively in the nine months of 2022,” wrote Fitch in the report. 

Earlier this week, an International Monetary Fund official said that higher oil prices are likely to lead to fiscal surpluses and growing foreign reserves for Gulf economies this year, and it will reduce the need for governments to borrow and crowd out the private sector.