Gulf Economies Cushion Impact of Steady US Rates with Oil, Strong Public Finances

Gulf economies absorb the impact of elevated US interest rates, supported by strong public finances and higher oil prices (Internet)
Gulf economies absorb the impact of elevated US interest rates, supported by strong public finances and higher oil prices (Internet)
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Gulf Economies Cushion Impact of Steady US Rates with Oil, Strong Public Finances

Gulf economies absorb the impact of elevated US interest rates, supported by strong public finances and higher oil prices (Internet)
Gulf economies absorb the impact of elevated US interest rates, supported by strong public finances and higher oil prices (Internet)

The Gulf economies are well positioned to absorb the impact of the US Federal Reserve's decision to keep interest rates at elevated levels, supported by strong government finances, higher oil prices, and continued momentum in economic diversification programs and infrastructure investment.

While the peg of most Gulf currencies to the US dollar requires monetary policy in the region to move broadly in line with Washington, strong oil revenues and sustained investment spending provide room to contain the pressure of elevated financing costs.

Experts who spoke to Asharq Al-Awsat said the Federal Reserve's decision to keep interest rates unchanged at 3.50% to 3.75% provides Gulf economies with greater stability and clarity regarding financing costs, despite continued pressure on the sectors most sensitive to interest rates, particularly real estate, construction, and retail. At the same time, higher oil prices support public finances, while banks and depositors benefit from higher returns, strengthening the region's ability to cope with the continuation of tight US monetary policy.

Monetary Stability

Hamza Dweik, Head of Trading for the Middle East and North Africa at Saxo Bank, said the Federal Reserve's decision to leave interest rates unchanged at 3.50% to 3.75% provides a degree of stability for Gulf economies, particularly given that most Gulf currencies are pegged to the US dollar.

Accordingly, Dweik expects Gulf central banks to maintain their current monetary policy stance to preserve alignment with US policy.

Although elevated financing costs continue to weigh on credit growth and interest rate sensitive sectors such as real estate and discretionary spending, Dweik believes Gulf economies remain in a relatively strong position, supported by solid government balance sheets, continued momentum in economic diversification programs, and ongoing infrastructure investment.

In the banking sector, he expects regional banks to continue benefiting from relatively high net interest margins as long as interest rates remain elevated.

High Financing Costs

Madhur Kakar, Founder and CEO of Elevate Financial Services, said the Federal Reserve's decision directly affects Gulf monetary policy through the region's currency pegs to the US dollar.

He noted that the Central Bank of the UAE kept its base rate unchanged at 3.65%, while the central banks of Qatar and Bahrain followed the same approach. Saudi Arabia also maintained its repo rate at 4.25%.

Kakar said the real significance of the decision lies not in holding rates steady itself, but in the underlying balance of risks. Three members of the Federal Open Market Committee voted in favor of raising interest rates, reflecting a division within the Fed that leans toward tighter monetary policy, while futures markets have priced in a higher probability of additional tightening before the end of the year.

"For the Gulf, this means the era of waiting for cheap money is over for 2026," he said, adding that financing costs will remain elevated for interest rate sensitive sectors such as real estate, construction, and retail.

However, Kakar also pointed to a positive factor, noting that Brent crude prices rose by more than 20% during July, making current interest rate levels beneficial in containing imported inflation while preserving the attractiveness of returns on Gulf deposits and sukuk.

Neutral Impact

Vijay Valecha, Chief Investment Officer at Century Financial, believes the Federal Reserve's decision has an overall balanced, or largely neutral, effect on Gulf economies, with a slight positive bias in the near term.

He said markets had been pricing in the possibility of one to three rate cuts, meaning the decision to leave rates unchanged effectively removed concerns about an immediate increase in borrowing costs for regional borrowers, an especially important factor for small and medium-sized enterprises as well as mid-sized companies.

He added that certainty regarding the direction of financing costs plays a greater role in guiding capital expenditure, working capital, and capital raising decisions than the absolute level of interest rates.

Because the Saudi riyal, UAE dirham, Bahraini dinar, and Qatari riyal are pegged to the US dollar, Gulf central banks moved in parallel. Valecha noted that the Central Bank of the UAE kept its benchmark rate at 3.65%, while the Saudi Central Bank (SAMA) maintained its repo rate at 4.25%.

He added that benchmark interbank rates such as EIBOR and SAIBOR have remained at levels borrowers have already adapted to over five consecutive policy meetings, limiting the marginal impact of the latest decision.

On the fiscal side, Valecha said higher oil prices, combined with geopolitical tensions in the Middle East, the same factors prompting the Federal Reserve to remain cautious, continue to support Gulf budgets and hydrocarbon revenues.

According to Valecha, banks benefit from wider net interest margins, while corporate treasury departments and retail depositors continue to earn attractive returns on dirham- and riyal-denominated deposits.

Potential drawbacks, however, are emerging for sovereign borrowers and major corporations. Yields on 30-year US Treasury bonds have climbed above 5.2%, increasing the cost of pricing US dollar-denominated sukuk and bond issuances for major regional issuers. With the September meeting still leaving open the possibility of another rate increase, Valecha said the current period of stability should not be viewed as permanent.

Oil and the Dollar

Looking ahead, Dweik said geopolitical developments and supply conditions will remain the primary drivers of Brent crude rather than any direct effect from the Federal Reserve's decision.

He noted that the US central bank itself identified energy supply shocks and geopolitical tensions in the Middle East as factors fueling inflation, underscoring the importance of crude prices in shaping the global economic outlook. For Gulf economies, stable and resilient oil markets remain a key safeguard for fiscal stability and government spending plans.

Kakar agreed that geopolitical factors will continue to be the main driver of oil markets, with tensions between the United States and Iran and developments surrounding the Strait of Hormuz shaping market dynamics. The impact of higher interest rates for longer, he said, will mainly be to limit gains by weakening demand expectations.

Valecha likewise expects oil prices to remain positive in the short term, driven more by geopolitical developments than monetary policy. He noted that Brent and West Texas Intermediate crude both jumped more than 7% following the latest escalation in the Middle East, highlighting that supply disruption concerns continue to outweigh worries about demand.

He added that higher energy prices could keep global inflation elevated, reducing the likelihood of near-term US interest rate cuts.

Gold and Metals

In currency markets, the experts expect steady interest rates to support the strength and stability of the US dollar as expectations for monetary easing decline, reinforcing the stability of Gulf currencies pegged to it. The impact is expected to be more pronounced in financing costs and market sentiment than in exchange rate movements. Persistently high US yields may also continue attracting capital flows into dollar-denominated assets.

Gold faces mixed forces. Higher interest rates and a stronger dollar weigh on the non-yielding metal, while geopolitical tensions, inflation concerns, and central bank purchases continue to support safe haven demand.

The experts expect gold to remain highly sensitive to inflation data and developments in the Middle East, with the potential for additional pressure if expectations for tighter monetary policy increase.

For industrial metals, copper and aluminum are expected to remain tied to global growth prospects. Continued economic activity supports demand, but elevated interest rates raise financing costs and weigh on cyclical industrial sectors. At the same time, the medium-term outlook remains supported by structural demand driven by electrification projects, renewable energy, and artificial intelligence infrastructure.



China, US Discuss Tariffs, Farm Trade at First Trade Council Meeting

US and Chinese flags are seen in this illustration taken March 20, 2025. (Reuters)
US and Chinese flags are seen in this illustration taken March 20, 2025. (Reuters)
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China, US Discuss Tariffs, Farm Trade at First Trade Council Meeting

US and Chinese flags are seen in this illustration taken March 20, 2025. (Reuters)
US and Chinese flags are seen in this illustration taken March 20, 2025. (Reuters)

China and the United States held their first trade council meeting under a bilateral economic and trade consultation mechanism via ‌video link ‌on Friday, China's ‌commerce ⁠ministry said on ⁠Saturday.

The two sides held "candid, in-depth and constructive discussions" on implementing outcomes ⁠from previous trade consultations, ‌including ‌tariffs, a reciprocal ‌tariff-reduction arrangement involving $30 ‌billion on each side, agricultural trade and other issues of ‌note, the ministry said.

Both sides will ⁠continue ⁠to use the council to address trade concerns, expand cooperation and reduce outstanding issues, it added.


IMF Says More Work Needed on Lebanon Reforms

A man walks past Lebanon's Central Bank headquarters in Beirut on November 10, 2026. (AFP)
A man walks past Lebanon's Central Bank headquarters in Beirut on November 10, 2026. (AFP)
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IMF Says More Work Needed on Lebanon Reforms

A man walks past Lebanon's Central Bank headquarters in Beirut on November 10, 2026. (AFP)
A man walks past Lebanon's Central Bank headquarters in Beirut on November 10, 2026. (AFP)

The International Monetary Fund said on Friday that more work was needed to reach an agreement on restructuring Lebanon's banking sector, one of the steps towards unlocking billions of dollars in financial assistance.

An IMF staff-level agreement reached in April 2022 laid out conditions to unlock assistance, including a law on the distribution of losses in the banking sector, known as the financial gap law, which parliament has still not voted on.

In a statement at the end of meetings that began on Tuesday, the IMF said "there was progress in further clarifying the approaches under consideration by the Banque du Liban (BdL) and the Government regarding banking sector reform, the draft financial regulation law and the recovery of deposits, and aligning them with international standards".

It however noted that "further work is needed to reach an agreement on a strategy for an effective and durable restructuring of Lebanon's banking sector, leading to a sound and resilient system".

The cabinet submitted a draft of the law to parliament in 2025, but the text is contested by the banking sector and political parties, preventing a vote.

Differences over estimates of losses and their distribution have stalled negotiations with the IMF.

In 2022, the government estimated losses resulting from the 2019 financial crisis at around $70 billion, a figure believed to have increased over the last seven years during which the crisis has remained unresolved.

Lebanese Finance Minister Yassin Jaber said during a news conference that he hoped to "achieve progress that would allow us to reach an agreement on a program with the IMF and sign it during the first quarter of next year, and by its end at the latest".

Lebanon's economic crisis, which the World Bank has ranked among the worst since 1850, has deprived depositors of access to all of their funds, destroyed confidence in the banking sector and led to greater reliance on cash liquidity in various economic and commercial activities.


Silver Demand Seen Down 5% This Year Due to Weaker Jewellery Purchases

Silver bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. (Reuters)
Silver bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. (Reuters)
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Silver Demand Seen Down 5% This Year Due to Weaker Jewellery Purchases

Silver bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. (Reuters)
Silver bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. (Reuters)

Silver demand is expected to fall by 5% in 2026 due to weaker jewellery demand and lower consumption in solar cells, where high prices have accelerated substitution, research showed on Friday.

Research done by consultancy Metals Focus for the Silver Institute puts demand at 1.08 billion troy ounces this year.

Silver, used in jewellery, electronics, electric vehicles and solar panels as well as for investment, is ‌down 59% ‌to $50 an ounce since retail buying drove prices ‌to ⁠a record high ⁠of $121.6 in January.

The base for that rally was created in 2025, when silver surged 147%, as massive inflows of the metal to US inventories due to tariff uncertainty and into silver-backed exchange-traded products (ETPs) tightened liquidity in the London market.

This year, expectations for higher interest rates, a stronger dollar and higher bond yields have weighed on investment ⁠sentiment.

Silver released through ETP selling, outflows from stocks ‌in the US and a smaller ‌market deficit improved liquidity in the physical market, the Silver Institute and ‌consultancy Metals Focus said on Friday.

Metals Focus sees net ETP ‌outflows of 45 million ounces this year after 278 million ounces of inflows in 2025.

As of early November, ETP holdings stood at 1.25 billion ounces.

Industrial demand is expected to fall by 3% in 2026 as installations ‌in photovoltaics have fallen short of expectations, particularly in China, while January's record silver prices accelerated ⁠substitution.

Meanwhile, demand ⁠for jewellery and silverware is forecast to decline by 22% and 17%, respectively, as higher prices and weaker rural spending in India encouraged purchases of smaller, lighter products.

Demand in China and the US is also subdued. Strong retail investment in late 2025 and early 2026 gave way to far more subdued buying from March as silver prices fell, Metals Focus said.

It expects global bar and coin demand to fall 2% this year, with US retail investment hitting its lowest level since 2010.