Oil-rich Gulf states have tried to respond to a United States interest rate cut without piling pressure on their dollar pegs or stoking inflation.
Qatar, for instance, tightened bank lending curbs on Wednesday for the first time this decade.
Qatar's central bank raised the reserve requirement by 50 basis points to 3.25 per cent, forcing banks to keep more money in their vaults to prevent lower borrowing costs from fuelling inflation that is just below a record high of 15 per cent.
Saudi Arabia, United Arab Emirates and Bahrain matched Tuesday's 25 basis point US Federal Reserve rate to ensure investors in their dollar-pegged currencies would not benefit from higher returns than they would get in US deposits.
The Saudi and Bahraini central banks tried not to make credit cheaper. Saudi Arabia cut its reverse repurchase rate, which guides the return on bank deposits, but left the benchmark repo, the rate at which it lends to banks, unchanged. Bahrain too cut its deposit rate and left lending rates steady.
"This is a continuation of the policy of the governments to dissuade speculators from placing bets on a revaluation of the local currencies," said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate. "They will not entertain pressure on their currencies," he said.
The UAE took its overnight repurchase rate to 4.25 per cent, exactly the same as the Fed benchmark. US consumer prices rose 3.5 per cent in the year to end October whereas UAE inflation hit a 19-year high of 9.3 per cent in 2006, the latest available figure.
"Rates are low any way you look at it," said Giyas Gokkent, head of research at National Bank of Abu Dhabi. "You have booming credit growth and the various countries are trying to react the best way they can."
Qatar was still deciding whether to follow the Fed, a central bank official said, asking not to be identified.
"We raised the reserve requirement by 50 basis points to 3.25 per cent," the official told Reuters.
All six oil producers preparing for monetary union as early as 2010 followed the last Fed cut on October 31 by reducing some interest rates. Saudi Arabia and Bahrain declined to match a September 18 easing, triggering market speculation of an imminent revaluation that drove the Saudi riyal to a 21-year high.
Kuwait, which broke ranks with its neighbours in May and severed its peg to the dollar, kept rates steady on Wednesday. Kuwait said inflation, which hit a record 6.2 per cent in September, was the main reason it decided to track the dinar's rate against a currency basket.
The UAE central bank said last month it wanted to follow Kuwait's lead and urged other Gulf states to unshackle their currencies from the weak dollar to help contain inflation.
Saudi Arabia, the largest Arab economy, dismissed the idea, and Gulf rulers agreed at a summit this month to keep their currency pegs.
The Saudis are also concerned about inflation, which hit 5.35 per cent in October, the highest in at least 12 years. Wednesday's cut took the reverse repo to 4 per cent. The repo stayed at 5.5 per cent.
The Saudi government raised some food subsidies this week to cushion the impact of rising prices and the central bank increased its reserve requirement for the first time in 27 years in November after matching the last Fed cut.
The Saudis have not changed the riyal's exchange rate since 1986. Having been forced to run budget deficits when oil prices tumbled in the 1990s, the kingdom fears any riyal appreciation will reduce the local currency value of dollar-denominated oil revenue. (REUTERS)