GCC markets slide as banks raise repo rate.

MUSCAT: GCC stock markets recorded negative performances this week mostly and oil prices continued to slide while recession concerns take the lead after this week’s interest rate hike in the US and elsewhere.

Traders expect a decrease in demand as the global economy continues to slow down.

The MSX was volatile during this busy week and could extend losses in the next trading sessions if energy prices continue to decline. Oil in particular remains exposed to demand expectations and could pull the market down.

The official price of Oman oil for November delivery dropped to below $90 to $89.28, compared to $91.25 on Thursday.

It may be noted that the monthly average price of Omani crude oil for delivery in September amounted to $103.21 a barrel, down by $9.72 compared to the price for delivery in August.

The Dubai stock market was volatile as traders continued securing their gains. The main index could see additional price corrections while investors remain concerned with decreasing economic activity worldwide.

The Qatari stock market closed the week on sharp losses, pulled by the negative performance of natural gas. The market could see some volatility next week if tensions flare up in Europe.

The Saudi stock market closed earlier this week due to a holiday and could see strong losses at its next open as traders might react to this week’s interest rate hikes. Negative performance in energy markets could also exacerbate the situation.

The Egyptian stock market ended the week with some volatility and could see price corrections in the coming days as recession concerns take center stage among international investors.

The Central Bank of Oman (CBO) has increased its repo rate for local banks by 75 basis points to stand at 3.75 percent. The move comes after the US Federal Reserve’s recent announcement to hike its key policy rate.

The Central Bank of Oman’s monetary policy target is to sustain and maintain its fixed exchange rate. This policy is aligned with the structure and nature of the Omani economy. There are a number of advantages for the Sultanate of Oman that is derived from this policy, namely ensuring the stability of the Omani Rial, mitigating capital outflow, and promoting certainty among investors by removing exchange rate risk.

The CBO has cautioned banks not to increase the cost of borrowing to consumers given ample liquidity in the system.

The global economy is witnessing rising and sustained inflationary pressure and as such, central banks in a number of countries are attempting to address this pressure by hiking their respective key policy rates with the objective of reducing lending and by default reducing aggregate demand that in turn would translate into reduced consumption.

While higher interest rates are expected to lead to lower inflation, in some cases, as related to consumers in high-income brackets, they could result in higher savings.

The Central Bank of the UAE raised its base rate applicable to the Overnight Deposit Facility (ODF) by 75 basis points – from 2.4% to 3.15%, effective from Thursday, 22 September 2022.

Qatar has also hiked its interest rates, matching the US one by 0.75%.

The central bank increased its lending rate to 4.5%, the deposit rate to 3.75%, and the repo rate to 4.0%.

The Central Bank of Kuwait raised interest rates by 0.25% to 3% from tomorrow

Elsewhere, Stock markets tumbled, the pound crashed against the dollar and oil prices slumped on Friday on growing recession fears after central banks this week ramped up interest rates to fight decades-high inflation.

With price rises showing no solid sign of letting up, monetary policymakers have been forced to go on the offensive, warning that short-term hits to economies are less painful than the long-term effects of not acting.

The Federal Reserve’s decision Wednesday to lift borrowing costs by 0.75 percentage points for a third successive meeting was followed by a warning that more big rises were in the pipeline and that rates would likely come down only in 2024.

That came along with similar moves by banks in several other countries including Britain, Sweden, Norway, Switzerland, the Philippines, and Indonesia — all pointing to a dark outlook for markets.

“We see this new even-higher-for-longer rate path as associated with a substantially higher likelihood of a hard landing, and so not just unambiguously hawkish but unambiguously bad for risk,” said Krishna Guha, vice-chair of Evercore ISI.

In a sign that recession expectations are rising, the 10-year US Treasury yield jumped to 3.7 percent, its highest level in a decade, while on Wall Street the S&P 500 has sunk to its weakest level since June and just above its 2022 lows.