Latest rate cut reaffirms Qatar’s commitment to maintain currency peg to the dollar, in which hydrocarbons export receipts are denominated, Economist Intelligence Unit (EIU) has said in a report.
The currencies of five of the six GCC members are pegged to the US dollar, and although the Kuwaiti dinar is pegged to a basket of currencies, the dollar is the most dominant.
The Qatari riyal has been pegged to the US dollar since 1980.
On March 4, Qatar Central Bank (QCB) cut the deposit rate (QCBDR), lending rate (QCBLR) and the repurchase rate (repo) by 50 (0.5%), 75 (0.75%) and 50 (0.5%) basis points respectively.
Following the latest cut, the rates are 1.5%, 3.5% and 1.5% respectively.
QCB cited domestic and international macroeconomic developments for the decision, which follows the emergency rate cut of 50 basis points by the US Federal Reserve.
Earlier, the Fed said in it decided to cut the rate in an effort to shield the US economy from the impact of the novel coronavirus.
According to EIU, the Fed decision on rate cut is an emergency response to mounting concerns over the global economic and financial impact of the coronavirus outbreak.
When the Fed cut its rate in November 2019—the third cut that year—five of the GCC central banks (the only exception being that of Oman) reduced their interest rates by 25 basis points (0.25%), EIU noted.
This is the first emergency cut and the largest single rate cut that the Fed has made since the global financial crisis in 2008. Prior to the spread of the disease, EIU said it ‘expected a rate cut in June.’
‘However, the spread of the coronavirus to several countries outside China in recent weeks—including Italy, Iran, Japan and South Korea—has shaken financial markets, prompting action by the Fed to stem the losses. The GCC states have also been hit by the onward transmission of the virus from travellers from Iran,’ EIU noted.
In its latest analysis, EIU said, ‘The impact of the spread of the coronavirus is likely to have a significant short-term impact on economic performance across the Gulf, both by reducing oil-related liquidity through weakening global oil demand, through the global supply chain, and by affecting non-oil sectors, hurting economic growth.’
