18-12-2024
Argaam Macro: Overview of US interest rate evolution ahead of today's Fed decision
Markets are awaiting today the decision of the US Federal Reserve at its last meeting this year regarding interest rates, amid expectations of a 25 basis points cut.
In case of an interest rates reduction decision, the cut will be the third this year, as the US Fed slashed interest rates by 25 basis points last November, to range between 4.50% and 4.75%.
The following chart shows the development of US interest rates:
The Saudi Central Bank (SAMA) usually follows the US Fed in updating interest rates on the Saudi riyal, due to the link between the two currencies (the riyal and the dollar).
Last November, SAMA reduced the rate of reverse repurchase agreements (reverse repo) by 25 basis points from 500 basis points to 475 basis points and cut the repo agreements rate by 25 basis points as well, from 550 basis points to 525 basis points.
The reverse repo represents the interest rate that banks receive when depositing their funds with the central bank, while the repo represents the lending rate from the central bank to banks.
The charts below show the development of repo and reverse repo in Saudi Arabia:
