Saudi Central Bank Raises Repo and Reverse Repo Rates by 25 Basis Points
Quick Look
The Saudi Central Bank (SAMA) raised the repo rate from 4.25% to 4.50% and the reverse repo rate from 3.75% to 4.00%, following the US Federal Reserve's 25-basis-point rate hike to 3.75%-4.00%, maintaining the riyal's peg to the US dollar amid inflation concerns.
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Why It Matters
The Saudi Central Bank typically follows the US Federal Reserve's lead in setting interest rates due to the Saudi riyal's fixed peg to the US dollar. The Fed's rate hike was its first in over three years, driven by persistent inflation.
RIYADH — The Saudi Central Bank (SAMA) has decided to raise the repurchase agreement (repo) rate by 25 basis points from 425 basis points to 450 basis points and reverse repurchase agreement (reverse repo) rate by 25 basis points from 375 basis points to 400 basis points.
This decision is in line with SAMA’s mandate of preserving monetary stability. This comes after the US Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday, bringing it to a range of 3.75 percent to 4.00 percent, compared to its previous range of 3.50 percent to 3.75 percent.
The US central bank raised its benchmark interest rate for the first time in over three years. The decision comes as the central bank grapples with stubborn inflation fueled by rising energy prices.
The Saudi Central Bank typically follows the US Federal Reserve's lead in changing interest rates on the riyal, given the riyal's peg to the US dollar. It is noteworthy that the repo rate represents the lending rate the central bank charges banks while reverse repo rate represents the interest rate banks receive when depositing funds with the central bank.
Open Questions
- How will Saudi banks adjust lending rates in response to the repo rate increase?
- What is the expected impact on consumer borrowing costs and savings yields in Saudi Arabia?
