Central Bank cuts rate to 2.5 percent
Published Date: February 08, 2010
KUWAIT: The Central Bank yesterday cut its benchmark discount rate by 50 basis points to 2.5 percent, its first reduction in nine months, the official KUNA news agency reported. Central Bank Governor Sheikh Salem Abdulaziz Al-Sabah said the reduction - the sixth since Oct 2008 following the global financial crisis - was made to make borrowing cheaper.
He said the cut came to "provide the necessary environment conducive to boosting growth in non-oil sectors of national economy by reducing the cost of lending after indications that inflationary pressures have declined". Sheikh Salem said that latest available data shows that inflation in April dropped for the seventh straight month to 5.2 percent after registering a record average of 10.6 percent in 2008. He also said the dinar 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.
A cut in interest rates makes borrowing cheaper and is likely to encourage Kuwaiti investment companies, hard hit by the global economic downturn, to seek fresh loans to refinance their debt. The move also comes a week after the National Assembly approved a four-year development plan that stipulates spending of more than $100 billion on mega projects.
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.
Separately, Kuwait is set to post a surplus of $24 billion in the current fiscal year on the back of higher oil prices, despite projecting a shortfall, an economic report forecast yesterday. Revenues for the state are expected to hit $61.8 billion in the year to March 31, far above budget projections of $28.1 billion, said the report by the private National Bank of Kuwait. Oil income, which makes up about 94 percent of total revenue, is expected to reach $57.8 billion, also considerably higher than the budget forecast of just $24.1 billion.
Kuwait calculated oil income at a conservative price of $35 a barrel, while average price for the year is expected to be double that at around $69.5, according to the report. Spending is forecast to reach $37.8 billion, about 10 percent below budget projections of $42.1 billion, the bank said. Kuwait, the fourth largest producer in the oil cartel OPEC, posted a preliminary budget surplus of $25.2 billion in the first nine months of the fiscal year, according to the finance ministry's website.
The huge surplus is expected to fall in the final quarter due to end-of-year accounting adjustments when pledged expenditure not included so far will be added to the closing statements. Kuwait had projected a deficit of $13.8 billion for the current fiscal year. The state has projected shortfalls in the past 10 fiscal years but eventually ended with a massive surplus in all of them. It finished last fiscal year with a surplus of $9.6 billion despite making a one-off payment of $19 billion to the state pension fund.
This would be Kuwait's 11th straight year of budget surplus. In the past decade, it has accumulated about $123 billion of budget surplus, based on available official data. The state, which transfers 10 percent of revenues every year into its sovereign wealth fund run by the Kuwait Investment Authority, is estimated to have assets worth about $230 billion. Kuwait says it sits on 10 percent of global crude reserves and pumps about 2.2 million barrels per day. It has a population of 1.1 million of its own citizens, and 2.34 million foreign residents. - AFP
Published Date: February 08, 2010
KUWAIT: The Central Bank yesterday cut its benchmark discount rate by 50 basis points to 2.5 percent, its first reduction in nine months, the official KUNA news agency reported. Central Bank Governor Sheikh Salem Abdulaziz Al-Sabah said the reduction - the sixth since Oct 2008 following the global financial crisis - was made to make borrowing cheaper.
He said the cut came to "provide the necessary environment conducive to boosting growth in non-oil sectors of national economy by reducing the cost of lending after indications that inflationary pressures have declined". Sheikh Salem said that latest available data shows that inflation in April dropped for the seventh straight month to 5.2 percent after registering a record average of 10.6 percent in 2008. He also said the dinar 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.
A cut in interest rates makes borrowing cheaper and is likely to encourage Kuwaiti investment companies, hard hit by the global economic downturn, to seek fresh loans to refinance their debt. The move also comes a week after the National Assembly approved a four-year development plan that stipulates spending of more than $100 billion on mega projects.
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.
Separately, Kuwait is set to post a surplus of $24 billion in the current fiscal year on the back of higher oil prices, despite projecting a shortfall, an economic report forecast yesterday. Revenues for the state are expected to hit $61.8 billion in the year to March 31, far above budget projections of $28.1 billion, said the report by the private National Bank of Kuwait. Oil income, which makes up about 94 percent of total revenue, is expected to reach $57.8 billion, also considerably higher than the budget forecast of just $24.1 billion.
Kuwait calculated oil income at a conservative price of $35 a barrel, while average price for the year is expected to be double that at around $69.5, according to the report. Spending is forecast to reach $37.8 billion, about 10 percent below budget projections of $42.1 billion, the bank said. Kuwait, the fourth largest producer in the oil cartel OPEC, posted a preliminary budget surplus of $25.2 billion in the first nine months of the fiscal year, according to the finance ministry's website.
The huge surplus is expected to fall in the final quarter due to end-of-year accounting adjustments when pledged expenditure not included so far will be added to the closing statements. Kuwait had projected a deficit of $13.8 billion for the current fiscal year. The state has projected shortfalls in the past 10 fiscal years but eventually ended with a massive surplus in all of them. It finished last fiscal year with a surplus of $9.6 billion despite making a one-off payment of $19 billion to the state pension fund.
This would be Kuwait's 11th straight year of budget surplus. In the past decade, it has accumulated about $123 billion of budget surplus, based on available official data. The state, which transfers 10 percent of revenues every year into its sovereign wealth fund run by the Kuwait Investment Authority, is estimated to have assets worth about $230 billion. Kuwait says it sits on 10 percent of global crude reserves and pumps about 2.2 million barrels per day. It has a population of 1.1 million of its own citizens, and 2.34 million foreign residents. - AFP