Riyadh – Saudi Arabia's central bank, SAMA, has lowered its benchmark interest rate for the third time this year, mirroring the US Federal Reserve's decision to reduce rates by 25 basis points. The move aims to maintain monetary stability amid shifting global economic conditions.

SAMA cut its repurchase agreement rate to 5 percent and the reverse repurchase agreement rate to 4.5 percent, effective [Effective Date]. This decision aligns with the US Federal Reserve, which lowered its target range for the federal funds rate to between 4.25 percent and 4.5 percent.

"This decision is in line with SAMA's mandate of preserving monetary stability in the context of global developments," the central bank said in a statement.

The latest cut follows a more aggressive 50-basis-point reduction in September, reflecting a recalibration of policy as inflationary pressures ease. The move is expected to lower borrowing costs for businesses and consumers, providing relief after a period of elevated rates aimed at curbing inflation.

GCC Central Banks Follow Suit

Central banks across the Gulf Cooperation Council (GCC), whose currencies are largely pegged to the US dollar, also adjusted their rates in line with the Fed's decision.

The UAE cut its overnight deposit facility rate by 25 basis points to 4.4 percent.
Oman trimmed its repo rate by the same margin to 5 percent.
Qatar opted for a slightly deeper reduction, lowering its three main rates by 30 basis points.
Bahrain reduced its overnight deposit rate by 25 basis points to 5 percent.
Kuwait Also Eases Policy

The Central Bank of Kuwait announced a 25-basis-point reduction in its discount rate to 4 percent, effective September 19th, emphasizing a "gradual and balanced approach" to monetary policy.

Balancing Act for GCC

Mahmoud Khairy, an economist and policy adviser, told Arab News that aligning with the US Fed helps GCC economies manage inflation and support economic growth by reducing borrowing costs.

However, Khairy cautioned that this strategy depends heavily on the US economic policy landscape. If the US shifts towards more aggressive monetary easing, GCC central banks may face challenges in balancing their own economic needs with maintaining currency pegs and investor confidence.

He further noted that while aligning with the Fed is crucial to sustain investment inflows, it presents unique challenges for countries like Saudi Arabia. Domestic inflationary pressures, particularly driven by rising housing prices and strong demand, make it more difficult to keep inflation low while maintaining a close link to US monetary policy.

US Fed's Easing Stance

Over the past two years, the US Federal Reserve has aggressively raised interest rates to combat inflation, significantly tightening monetary policy. While inflation in the US has moderated, it remains slightly above the Fed's 2 percent target, leaving consumers burdened by high costs.