Most GCC central banks cut key rates; Kuwait holds rates steady

31/10/2025 07:39 AST

Most Gulf central banks cut key interest rates on Wednesday after the US Federal Reserve moved to reduce rates by a quarter of a percentage point, its second rate cut decision this year. The Fed's decision to cut rates by 25 basis points drew dissents from two policymakers and Chair Jerome Powell said a further reduction in interest rates in December was far from a foregone conclusion. The oil and gas exporters of the Gulf Cooperation Council generally follow the Fed's lead on interest rate moves as most regional currencies are pegged to the US dollar. Only the Kuwaiti dinar is pegged to a basket of currencies, which includes the US dollar.

Saudi Arabia, the region's biggest economy, cut its repurchase agreement (repo) rate by 25 bps to 4.50 percent and its reverse repo rate also by 25 bps to 4 percent. The United Arab Emirates' central bank reduced the base rate applied to its overnight deposit facility to 3.9 percent, effective Thursday.

Shielded from stubbornly high inflation elsewhere, the Gulf region is expected to benefit from lower interest rates to stimulate economic activity and bolster non-oil growth. All have embarked on ambitious programs to diversify domestic economies away from hydrocarbons and develop sectors such as real estate, tourism and manufacturing, which require billions in financing and investment.

The central banks of Qatar, Bahrain and Oman all followed the Fed move and cut key rates by 25 basis points. The Central Bank of Kuwait decided to hold rates steady and said monetary policy was consistent with local economic conditions.

Earlier on Wednesday, the US Federal Reserve announced its second quarter-point rate cut in a row to bolster the flagging labor market, in a move that highlighted the growing division in its ranks.

Policymakers voted 10-2 in favor of lowering the bank's key lending rate to between 3.75 percent and 4.00 percent, the Fed said in a statement. Opposed to the action were Fed governor Stephen Miran, who backed a bigger half-point cut, and Kansas City Fed president Jeff Schmid, who "preferred no change to the target range for the federal funds rate at this meeting," the Fed said.

"We continue to face two-sided risks," Powell told reporters at a press conference in Washington. He added that during the Fed's discussions this week, "there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it," he said.

Wall Street stocks fell after Powell threw cold water on the prospects of a December rate cut, ending the day mixed. The decision to cut rates boosts the US economy at a time when businesses are still digesting the effects of President Donald Trump's sweeping tariffs, and buys policymakers some more time as they wait for the end of the government shutdown. Republicans and Democrats remain politically gridlocked almost a month after the start of the shutdown, which has resulted in a suspension of publication of almost all official data.

"The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends," Powell said on Wednesday.

"We're going to collect every scrap of data we can find, evaluate it, and think carefully about it," he added. "If you're driving in the fog, you slow down." Fed officials have in recent months flagged concerns that the labor market is cooling, causing them to shift their attention to bolstering hiring, even though inflation remains above the Fed's target. "We have 4.3 percent unemployment. We have an economy that's growing close to two percent, so overall it's a good picture," Powell said on Wednesday.

Kuwait Times