Qatar cut its overnight deposit rate by 50 basis points, the first reduction in over two years, to bring it more into line with global and regional rates, the central bank said on Sunday. The cut to 1.5 percent is effective August 11, the bank's website www.qcb.gov.qa showed.
The bank confirmed reports of a rate cut by banking sources last week. Gulf officials rarely discuss policy in public and some decisions are not immediately announced.
"Lowering the interest rate in Qatar was in line with the global and regional situation," the bank said. Continued deflation in recent months and July's rating upgrade by Standard & Poor's by one notch to 'AA' were also reasons for the cut, it added.
Other key rates - the overnight lending facility and the repo rate - were unchanged at 5.5 percent and 5.55 percent, respectively. Analysts have said the rate move was aimed at boosting Qatar's non-oil economy and curbing capital inflows. Qatar, the world's largest liquefied natural gas exporter, had kept its main rates unchanged since May 2008 despite the global financial crisis.
Its economy is expected to surge 16.1 percent in real terms this year, faster than any other Gulf oil exporter, mainly due to gas output expansion and generous infrastructure spending.
Inflation is expected to be in the low single digits with consumer prices forecast to rise 1.7 percent this year after falling 4.9 percent in 2009.
Consumer prices edged up by 0.1 percent month-on-month in June for an annual decline of 2.8 percent.
Government-driven expansion of gas facilities, however, is coming to an end and there is a need to support the non-oil sector, analysts have said. The International Monetary Fund, in a report on Qatar in February, said the central bank had indicated it was monitoring capital inflows carefully and was ready to adjust interest rates if needed.
Qatar pegs its currency to the dollar, limiting central banks' flexibility to move too far from the US benchmark rate as that could trigger larger capital flows and put their pegs under pressure.
The US Federal Reserve is expected to keep rates in a range of zero to 0.25 percent through mid-2011.
Qatar's Deputy central bank governor Sheikh Fahad Faisal al-Thani told Reuters last December that by holding rates steady, the bank wanted to maintain a positive differential with the US benchmark to prevent capital outflows.