Fed policy tightening not all bad for Gulf economies

RIYADH: The impending end of the super-loose monetary policy from the Federal Reserve will have both positive and negative effects on the economies of the Arabian Gulf, Arab News quoted Alia Moubayed, a managing director at investment bank Jefferies International, as saying.

A likely strengthening of the dollar, to which the Gulf currencies are pegged, may push down inflation, because it makes imports less expensive, Moubayed said in an interview with Asharq.

Higher interest rates on the dollar-denominated assets tend to lead to outflows from the emerging markets, but Moubayed said that the Gulf markets have recently witnessed an influx of foreign capital, especially into stocks, and so should not be affected as badly as many of their Emerging Market peers.

Higher interest rates will increase the financing burden on the governments with large budget and trade deficits, such as Bahrain, Moubayed said.

However, the countries such as Qatar, Saudi Arabia and the UAE will “benefit from [the] shrinking deficits due to the rise in [the] oil prices and the increase in revenues in national currencies,” she said.

The Federal Reserve announced on Friday that it will likely to start reducing its asset purchase programme soon, and said the policymakers are increasingly minded to start raising interest rates in 2022 instead of 2023 as previously envisioned.

If the progress towards employment and inflation targets continues, the slowdown in asset purchases may start in November and end in the middle of 2022, the Fed said.