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
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
Dubai’s woes make it unlikely the UAE will rejoin the plan for Gulf monetary union any time soon.
The Gulf co-operation council – Saudi Arabia, Kuwait, Qatar and Bahrain, the UAE and Oman – will meet over the next three days in Kuwait, where a single regional currency is likely to be discussed. The UAE pulled out of the plan in May in protest at the Saudi siting of the proposed joint central bank. Kuwait, about to take over presidency of the GCC, has said the location would not be reviewed. Read more