Qatar, GCC central banks mirror US Federal Reserve's rate hike

Mirroring the move by the US Federal Reserve (Fed) Qatar and other GCC central banks have all raised rates by 25bps or 0.25%.On Wednesday, Qatar Central Bank raised the QCB deposit rate (QCBDR) by 25 basis points, to 5.75%.QCB also decided to raise the banks’ lending interest rate (QCBLR) by 25 basis points, to become 6.25%, and the repurchase rate (QCB Repo Rate) by 25 basis points, to become 6%The revised rates took effect on July 27, QCB said.According to Oxford Economics, this is likely to be the final hike of this cycle, given that inflation has peaked and economies are slowing rapidly."We still think the Fed will start cutting rates next year, encouraging banks across the GCC to ease policy rates," Oxford Economics said in its weekly briefing on Thursday."We expect the hike to be last of this cycle but think the Fed will stay committed to its data-dependent approach."The Fed will likely start cutting rates next year, which will allow the GCC central banks to begin easing policy. Still, rates will likely only come down gradually, which will drag non-oil GDP growth in the region down to 3.9% in 2024, from 4.4% this year," Oxford Economics noted.Recently, the International Monetary Fund (IMF) downgraded its expectations for economic growth in Saudi Arabia, following the cuts to oil supply in April and June.But Oxford Economics said it thinks its revised 2023 forecast is still "too optimistic", as it expects the supply cuts to be extended into September."We have downgraded our GDP growth forecast for the Mena region to 2.6% for this year, and to 3.1% for 2024," Oxford Economics noted.The researcher said inflation has "probably peaked" across the GCC, but unlike the rapid rise in prices, it expects the inflation rate to reduce only slowly into 2025."Risks remain to the upside given tentative signs of food prices rising globally and waning demand in advanced economies. Conversely, if the US economy avoids a recession later this year, the Fed may delay the cutting cycle, keeping rates higher for longer across the GCC," Oxford Economics said.In its mid-year update of global forecasts, the IMF slashed the 2023 GDP growth forecast for Saudi Arabia to 1.9% from 3.1%. The revision reflects the decision by Opec+ in April to gradually decrease oil output, as well as the voluntary one million barrels per day cut by Saudi Arabia through July and August.In its baseline, Oxford Economics forecasts GDP growth at 1.1% this year, expanding to 3.9% in 2024. In Egypt, the 2023 IMF projection is in line with our forecast but there is a large diversion for 2024.Oxford Economics baseline incorporates another devaluation against the dollar in mid-September and another 200bps hike to key policy rates this year.