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Hikes in interest rates: How does it affect Africa?

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Central banks of some Gulf countries tended to raise interest rates following the increase in the United States interest rates by 75 basis points on Sept. 21

Central banks of some Gulf countries tended to raise interest rates following the increase in the United States interest rates by 75 basis points on Sept. 21. The Central Bank of the United Arab Emirates decided to raise the interest rates to move in parallel with the USA rate increase, which resulted in an increase by 75 basis points, to reach the overnight deposit rate from 2.4 percent to 3.15 percent.

The Federal Open Market Committee (FOMC) announced raising its key interest rates by 75 basis points (bps) in an effort to combat decades-high inflation. However, the impact seems to be global since, let alone the Gulf countries, some of the major economies have either hiked up the interest rates or are in the process of doing so. The impact on the African countries will be indirect since some of the African countries and their businesses route their financial deals through banks based in the Gulf. The transaction cost will be accordingly going up. Also, because of the tight money policy being followed by these countries, the flow of investments from these destinations will be tardy, at least during the time when the interest rate gets stabilized. The other impact will be erosion in the values of the local currencies of the African countries against the greenback.

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This is the third time in a row for the Fed to raise interest rates against the background of its struggle with the US soaring inflation due to the Ukraine crisis and its impacts on world economies.

The Emirati bank said it would maintain the rate on borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the base rate. The Saudi Central Bank (SAMA) raised its reverse repo rate by 75 basis points (bps) to 325 bps from 250 bps, while the repo rate was increased to 375 bps (3.75 percent) from 300 bps.

The Bahrain central bank also raised its key policy interest rate on the one-week deposit facility from 3.25 percent to 4.00 percent. The Qatar Central Bank also announced raising the lending interest rate by 75 basis points to 4.5 percent.  It decided to raise the deposit interest rate by 75 basis points to 3.75 percent. The Central Bank of Kuwait announced raising the discount rate by a quarter of a percentage point to 2.75 percent, which is lower than the rates of the US Federal Reserve raising interest rates.

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