CBK Raises Discount Rate by a Quarter Percentage Point
As part of the Central Bank of Kuwait’s (CBK) vigilant monitoring of domestic and international economic and geopolitical developments, and monetary policy trends in the global economies, and in light of the Federal Reserve’s decision passed in its meeting held on 15-16 March 2022 to raise the USD interest rate by 0.25%, the CBK Board of Directors decided to raise the discount rate by 0.25% from 1.50% to 1.75% effective March 17 2022. In addition, the CBK decided to change the rates of monetary policy instruments by varying percentages for the entire interest rate yield curve, up to the ten-year term. This includes repurchases (Repo), CBK bonds and tawarruq, term deposits, direct intervention instruments, as well as public debt instruments.
Governor Dr. Mohammad Y. Al-Hashel stated that by raising the discount rate, CBK strives to maintain an environment conducive to sustainable economic growth considerate of inflation rates, and affirm the attractiveness of the Kuwaiti Dinar as a lucrative and reliable store for domestic savings, being a mainstay of monetary policy.
The Governor added, the decisions taken by the Central Bank of Kuwait, whether around changes to the discount rate (raising or cutting) or regulating liquidity in the banking sector through the various instruments to maintain monetary and financial stability are informed by thorough assessments of the latest local and global economic data. This data includes economic performance indicators such as economic growth and inflation rates, local liquidity levels, developments in deposits, and interest rates for the Kuwaiti Dinar and main foreign currencies, and forecasted trends that could impact the national economy. To ensure a prudent monetary policy, the CBK utilizes advanced analytical and forecasting models to determine the current and future economic state, capable of incorporating various economic indicators and their complexities and interdependencies.
Throughout the COVID-19 pandemic, the CBK had adopted an accommodative monetary policy and reduced the key discount rate twice by 125 bps to a historical low of 1.50%.
Al-Hashel concluded that the Central Bank continues its vigilant monitoring of economic, monetary, and banking developments in its efforts towards safeguarding financial and monetary stability.