Saudi Arabia, UAE, Qatar and Bahrain matched US rate cuts on 12 December, the day after the US cut interest rates, in a bid to stem speculative currency betting on an imminent revaluation.
However, the central banks’ cuts will add to the Gulf’s liquidity problem, with the surplus of cash in the oil-producing economies resulting in rising inflation.
Economists expect to see more interest rate cuts in the US in 2008 as it attempts to prevent the credit squeeze from halting US economic growth.
More cuts will put further pressure on GCC dollar pegs.
Kuwait, which dropped its peg to the dollar in favour of a basket of currencies, has so far kept rates unchanged, as has Oman.