The Qatar Central Bank (QCB) has increased its interest rates by 0.25%, in line with the US Federal Reserve’s decision to hike the rates.
Accordingly, overnight lending rate has been increased from 4.5% to 4.75% and deposit rate from 0.75% to 1%, effective as of the date hereof, the QCB said in a statement.
The deposit and lending rates are announced by the QCB on overnight deposit and loan transactions between the QCB and local banks through the Qatar Money Market Rate Standing Facility, respectively.
The Qatari banking regulator has also amended the repo rate to become 2.25% and reduced the maturity date of the repo rate for public securities from 14 to 7 days.
The Fed on Wednesday increased its interest rates by 25 basis points, which reflects a strengthening US economy. Global credit rating agency Moody’s expects the Fed to tighten at a very gradual pace, with two to three more rate increases, pushing the Fed funds rate to around 1.25% to 1.5% by the end of 2017.
In its risk perception survey, the QCB had found that 40% to 60% of banks viewed higher liquidity risk impact in 2016 on the US rate rise.
Given that the riyal has fixed exchange parity with the dollar, which makes the domestic monetary policy rather a function of the US’ policy, the interest rate hike has already been factored in, market sources said.
The QCB had kept its policy rates unchanged in 2015 and managed liquidity to ensure comfortable liquidity in the system and “stable” interest rates to support growth with economic diversification.
BMI, a Fitch group company, had recently said in a report that the QCB is likely to follow the Fed in its gradual tightening cycle, hiking interest rates by 25 basis points (bps), or 0.25%.
“As we forecast Qatari economic growth to pick up in 2017, with business confidence benefiting from the recovery in oil prices, the economy will be able to withstand a small rate hike over the course of the year,” BMI had said in the report.
The rate hike would be able to moderate the modest uptick in inflationary pressures over the next 12 months, it had said, adding the the QCB will also seek to limit pressure on the riyal’s peg to the dollar.
Analysts contacted by Gulf Times were largely of the view that the Qatari banking industry would be left with no other option but to pass on the increased (funding) costs to customers.
A top official at one of the domestic banks said the industry has been witnessing increased costs in providing many services but declined to be specific on passing on the costs to customers.
Depending on the liquidity conditions of the individual banks (as many of them had recently raised capital from the market), they would announce their rates, which may not necessarily reflect the full impact of the increased cost of funds, he said, highlighting the increased risks for those entities that accessed foreign shores for capital.