Gulf Arab oil producers, bar Oman, dropped interest rates on Thursday, mirroring a US cut, in a move likely to fuel near record inflation and add pressure on them to revalue their currencies or even drop their dollar pegs.
Saudi Arabia, the world's largest oil exporter, lowered its reverse repurchase rate by 50 basis points to 3 per cent, matching Wednesday's cut in the United States.
The US Federal Reserve has cut its benchmark five times since September 18 by a total 2.25 percentage points. The total to date for Saudi Arabia, which pegs its currency to the dollar, is 2 percentage points.
"These countries are doing the bare minimum to try to sanitise money supply and signal to the market that they want no speculation on the currencies," said John Sfakianakis, chief economist at Saudi Arabia's SABB bank, an affiliate of HSBC Holdings Plc.
Saudi Arabia, like most of its neighbours, continued with a policy of leaving its benchmark repo rate, which guides bank lending rates, steady at 5.5 per cent, to prevent lower borrowing costs from fuelling inflation.
After an emergency Fed cut of 75 basis points last week, the kingdom and neighbouring Bahrain raised bank reserve requirements to force lenders to keep more money in their vaults.
"The central bank will have to rein in on banks eventually," Sfakianakis said.
Kuwait -- the only Gulf oil producer not pegged to the dollar -- and the United Arab Emirates each lowered their repurchase rates by 50 basis points to 3.5 per cent on Thursday.
Kuwait left its benchmark discount rate unchanged at 5.75 per cent, having cut it for the first time in 18 months last week following the Fed move.
The repo is the rate at which the central bank lends to commercial banks, thus guiding the rate at which the banks lend on.
Gulf risks fuelling inflation with rate cuts