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Kuwait bank rates rise as investors quit dinar

Kuwait City, July 26, 2007

Interest rates on the Kuwait interbank market jumped on Thursday as investor pulled out of the dinar after the central bank allowed the currency to depreciate for the first time in at least four years.

The one-month Kuwait Interbank Offered Rate rose to 4.1250 percent from 3.8750 at the time of the central bank announcement that it would allow the dinar to depreciate 0.11 percent. Three month and six month rates also rose.

'People are moving out of dinar, realising it is no longer a one-way bet,' said Steve Brice, head of Middle East research at Standard Chartered in Dubai.

With deposits being converted into dollars, banks had fewer dinars to lend each other, driving up interest rates.

The central bank set the dinar's rate at 0.28230 per dollar on Thursday compared with 0.28200 on Wednesday, when it allowed the currency to appreciate for the third time this year.

The first revaluation, on May 20, came as the bank dropped its peg to the dollar and adopted a basket of currencies.

Investors piled into the dinar in the run up to and after the May 20 move, prompting the central bank to suspend the sale of one-month certificates of deposit on May 27 to deter bets on currency appreciation.

The one-month interbank rate fell to 5.1875 percent on May 27 from 5.2500 the previous day, as banks struggled to place their growing dinar deposits among each other instead of with the central bank.- Reuters  




Tags: Dollar | Dinar | Kuwait bank |

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