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Kuwait cbank surprises with rate cut

Kuwait City, February 8, 2010

Kuwait's central bank cut its key discount rate by 50 basis points to 2.5 per cent to support growth in the country's non-oil sectors as inflation is seen staying low.

Policymakers across the world's largest oil exporting region slashed borrowing costs and embarked on a massive fiscal stimulus last year to help their economies cope with the global financial crisis.

Kuwait's central bank has cut its key rate by 200 basis points since October 2008, with the previous 50 basis-point reduction coming in May 2009.

"Central Bank Governor Sheikh Salem Abdul-Aziz Al-Sabah said the cut ... is aimed at ... enhancing growth in non-oil sectors of the national economy by minimising the cost of credit," state news agency Kuna reported.   

The governor said the bank was able to trim the rate as all indicators pointed to a continued reduction of inflation, whether imported or local, Kuna reported.   

Sheikh Salem also said the dinar currency continued to be attractive and competitive, making it "a local savings pot" and that dinar deposits in local banks created a suitable climate for reducing the discount rate.   

The central bank officials were not immediately available to confirm his comments.

Gulf states are tied to the US-led monetary policy through their currency pegs to the dollar. Kuwait dropped its dollar peg in favour of a basket in 2007 but analysts have estimated the greenback's weight at around 75 percent.

Analysts said the move could help Kuwait's economy recover from last year's downturn, while inflation was expected to stay well below record highs seen in 2008.

"The move is intended to boost growth and help private sector borrowing and overall investments whilst it has little less to worry about inflation as the dollar is strengthening and domestic price pressures are not building up," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

The economy of the world's fourth largest oil exporter is expected to expand 3.4 percent this year after an estimated contraction of 2.0 percent in 2009, a Reuters poll showed last month.

Non-oil sectors account for around 46 percent of Kuwait's gross domestic product. Consumer price growth slowed sharply across the Gulf last year from 2008 record peaks with some countries -- such as the United Arab Emirates and Qatar -- experiencing deflation.

Kuwait's annual inflation was seen staying at 4.3 percent this year, well down from 10.5 percent in 2008. The country has been slow in releasing inflation data for 2009 with April's 5.2 percent the latest figure available. - Reuters

Tags: Central Bank | Kuwait | rate cut |

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