The Central Bank of Kuwait on Wednesday cut its discount rate by 50 basis points to 3.00 percent, its second reduction in a month, the official KUNA news agency reported. The central bank said the reduction - the fifth since October - will be effective as of Thursday.
Central bank governor Sheikh Salem Abdulaziz al-Sabah said the latest cut came to "help boost growth in non-oil sectors of the domestic economy by reducing the cost of lending after indications that inflationary pressures have declined." He added the measure "is another step in central bank efforts to strengthen confidence in national economy by stimulating demand and eventually boosting non-oil growth."
The decision was also taken after an increase in liquidity levels at local banks, the governor said. Inflation in Opec's fourth largest producer hit a record high 10.6 percent annual average last year, but it showed a gradual decline in the last four months of the year, ending December at nine percent. Several Kuwaiti economic sectors, especially investment firms, have been hit hard by the fallout of the global financial crisis and the emirate's two top investment firms have defaulted on their debts.
Last month, the government of the oil-rich Gulf state approved a multi-billion-dollar stimulus decree to encourage banks to offer new loans and help troubled investment firms. A cut in interest rates makes borrowing cheaper and will likely encourage troubled investment companies to seek fresh loans to refinance their debt.
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