The central banks of the GCC raised their benchmark borrowing rates after the US Federal Reserve doubled down and aggressively raised its key interest rate to tame surging inflation and restore price stability. Five of them – Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates – followed the Fed in increasing their rates by 75bp. Kuwait is an exception in the six-member economic bloc as its dinar is linked to a basket of currencies.

The Fed on Wednesday increased the policy rate by 75 basis points (bps) after a larger-than-expected three-quarters percentage point in June. This is the Fed's fourth interest rate increase in four months and the biggest since 1994. The central banks of Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman all raised their key rates to 3%, 2.4%, 3%, 3.25% and 3%, respectively. Whilst Kuwait raised its rates by 25 basis points (bps) to 2.5%. "The rate hikes by the GCC central banks continue to show commitment to the regional currency pegs to the USD," said Monica Malik, chief economist at Abu Dhabi Commercial Bank, adding Kuwait's currency basket gave it more monetary flexibility.

Inflation in the US in June hit 9.1%, the highest since 1981. In countries including Saudi Arabia and the UAE, inflation has not been impacted greatly. In Saudi Arabia, the Arab world's largest economy, the annual inflation rate edged up to 2.3 % in June of 2022 from 2.2% in May, according to the data released by the General Authority for Statistics. However, analysts state consumer sentiment may start to shift soon. “Higher cost for services and goods will change the attitude of customers. People will move away from goods like higher brands, luxury, assets, and sometimes, maybe to the most important services like healthcare, education and food," explained Riyadh-based analyst Abdullah Baeshen.