Kuwait central bank cuts interest rates

The central bank of Kuwait's governor says the bank has cut its benchmark interest rate by 1.25 percentage points to 4.5 per cent, according to media reports. The bank also reportedly cut its repo rate by one percentage point to 2.5 per cent. "We are part of the world economy, whose markets are increasingly merged, making precautionary measures more important," Sheikh Salem Abdul Aziz al Sabah was quoted saying by the state-owned Kuwait News Agency.

Lowering the key rate makes it cheaper for commercial banks to borrow from the central bank, which should loosen the liquidity squeeze gripping Kuwait's financial system. Interbank lending rates have risen significantly in the region during the past six months. In the UAE, the three-month Emirates interbank offer rate (Eibor) rose to 4.70 per cent today, more than double where it stood in June. The Saudi three-month interbank rate climbed to 4.59 per cent according to Bloomberg news, twice its rate in May this year.

Kuwait is the only country in the GCC that does not peg its currency to the dollar, giving it the freedom to change monetary policy independent of the US government. [e-mail]