Central banks of the world, prepare to welcome a new addition to the family: the Gulf central bank.
Its leaders have just been announced by the new joint monetary council, in what will probably be seen as the inaugural meeting of the new joint central bank. Jurisdiction will cover Saudi Arabia, Qatar, Kuwait and Bahrain. Reuters reports the bank chairman as Saudi central bank chief, Dr Muhammad Al-Jasser. His deputy will be Bahrain’s central bank chief Mr Qassim Mohammed Fakhro.
With leaders chosen, meetings underway and an ultimate head office location of Riyadh (see map), what more is required? “There are certain legislative and financial measures that have not been completed” for the monetary union, Kuwait central bank governor Sheikh Salem Abdulaziz Al-Sabah told a news conference. Today’s meeting is expected to approve plans and a timeframe for the new institution. Read more
The central bank of Kuwait has cut the discount rate by 50 basis points to 2.5 per cent and its repo rate 25bp to 1.5 per cent. Yesterday’s reduction, the sixth since October 2008, was aimed at stimulating non-oil sectors. Kuwait has been diversifying its activities from oil towards financial services. Bank governor Sheikh Salem Abdulaziz Al-Sabah said indicators showed inflation pressure has continued to ease.
Kuwait is one of five Gulf states planning a single currency, so diverging interest rates between the states could have spelt difficulties ahead. However, the other four states have similarly low and stable rates (NB. all Gulf states except Kuwait peg to the dollar). Saudi Arabia recently stated there was ‘no chance of a rate increase’; Bahrain’s repo rate is steady at 2.25 per cent; Qatar’s is stable at 5.55 per cent; the repo rate of Oman – not joining in the first phase – has been steady at 2 per cent. Read more
The Kuwaiti parliament has approved a bill that is extremely unpopular with both the government and the central bank. If passed into law, the bill could force the government to buy all $23.3bn of consumer loans in the country, write off the interest and reschedule the payments.
The government plans to ask the emir, Sheikh Sabah al-Jaber al-Sabah, to reject the law, and the central bank has said the bill includes legal and technical violations and cannot be applied. The government has bailed out indebted nationals twice before, once after the 1982 stock market crash, and again after the 1991 Iraqi occupation. Read more
A common single currency for the Gulf is a step closer after the central banks of Saudi Arabia, Qatar, Bahrain and Kuwait were asked to stop lending to the public sector in preparation for a unified regional central bank. It is not known whether bonds are considered part of the public sector loan portfolio.
The four states are part of the Gulf Co-operation Council, which also includes Oman and the United Arab Emirates. The latter two are not planning to join monetary union at this stage.
Apparently, the draft GCC common monetary union agreement prohibits the central banks Read more