US ratings agency Moody’s says that the decision by Saudi Arabia and the UAE to increase interest rates by 25 basis points in mid-March is credit positive for banks in both countries.

On 15 March, the Saudi Arabian Monetary Authority (Sama) raised its two key interest rates by 25 basis points in response to the decline of Saudi money rates below US rates following the increase in rates in the US.

Sama increased its repo rate, the reference for its financing to banks, to 2.25 per cent, the first hike since 2009, and raised its reverse repo rate, the reference for banks’ lending and their deposits placed with central bank, to 1.75 per cent.

Moody’s says this is credit positive because they will prevent Saudi investors’ and depositors’ capital outflows and positively reflect the Saudi banking system’s stable liquidity conditions.

The UAE Central Bank has similarly increased its repo rate by 25 basis points to 2 per cent. Moody’s says the rate hike is credit positive for UAE banks because it will support their profitability by increasing net interest income, which accounted for around 69 per cent of rated UAE banks’ total net revenue of around $19bn during 2017 and is a key profitability driver.