Kuwait confirms banking sector priority over inflation

19 October 2008
The Central Bank of Kuwait has said that it will continue to act to boost confidence in its domestic banking system, making this a priority above fighting the country’s double digit inflation.

Central bank governor Sheikh Salem Abdulaziz al-Sabah said: “In the beginning our aim was to direct all our policies towards fighting inflation, but other issues have surpassed.”

Inflation in Kuwait hit 11.35 per cent in June, and had been predicted to start to moderate in 2009. However, the additional liquidity injected into the banking system could stoke inflation further.

This has come in the form of offering direct funding to banks, lowering the loan to deposit ratio to 80 per cent, allowing banks to make an additional KD1.2bn ($4.47bn) of loans, and cutting interest rates by 125 basis points to 4.5 per cent.

He added that Kuwait would guarantee bank deposits if necessary, as has happened in Saudi Arabia and the UAE, but felt that it was not currently required to do so.

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