CBK Cuts its Discount Rate by 1% from 2.50% to 1.50%
The Central Bank of Kuwait’s Board of Directors has decided on 16 March 2020 to cut the discount rate 1% (from 2.5% to 1.5%) effective from 17 March 2020. This decision is part of the preventative measures the CBK has taken to contain the negative impact of the COVID-19 outbreak on the global and national economic growth, in addition to the steep decline in oil prices and its impact on Kuwait’s fiscal position, and the 15 March 2020 Federal Reserve decision to cut interest rates by 1%.
This historical low interest rate aims to reduce the cost of borrowing across economic sectors for both individuals and corporations, to foster an atmosphere conducive to sustainable economic growth, and to maintain monetary and financial stability.
The CBK also decided to cut the repo rate and all monetary policy instruments by 1%. This aims to increase liquidity between the banking and non-banking sectors of the economy and to ensure the attractiveness of the Kuwaiti Dinar as a reliable store for domestic savings.
In a statement, His Excellency the Governor, Dr. Mohammad Y. Al-Hashel noted that this discount rate cut comes following the 4 March 2020 quarter percentage point reduction. This second cut comes as the margin in interest rates is widening in favor of the Kuwaiti Dinar after the Federal Reserve cut their rates.
Dr. Al-Hashel remarked, Kuwaiti banks are in a strong position and are able to withstand external shocks due to the strong financial buffers and financial soundness indicators. He added, despite current pressures, the banks are able to continue to serve the national economy with great efficiency, assisted by the State’s guarantee of deposits underpinning the stability of the banking sector and boosting confidence in the position of the Kuwaiti Dinar.
He added, the banking sector’s strength has been bolstered by prudent monetary and regulatory policies implemented by CBK; namely, maintaining a stable exchange rate regime, maintaining interest rates fitting local economic needs, managing liquidity levels, strengthening banks’ capital, and application of precautionary provisions and regulatory financial buffers. This has been commended by the IMF and international credit agencies.
The Governor concluded his statement by adding; “CBK is vigilantly monitoring the developments in the global economy and their impact on local markets and the banking sector, and will not hesitate to take the necessary decisions to ensure monetary and financial stability”.