The Central Bank of Kuwait has cut its key interest rate by 50 basis points to 2.5 per cent in a bid to stimulate the economy.

According to a statement issued to the Kuwait News Agency (Kuna) on 7 February by central bank governor Sheikh Salem Abdulaziz al-Sabah, the rate cut was made to create a suitable climate for the growth of non-oil sectors of the national economy.

The central bank has also cut its one week and one month repurchase rates by 25 basis points, to 1.5 per cent and 2 per cent respectively. These cuts make it less attractive for banks to put money on deposit with the central bank and so should prompt them to lend more money to businesses and individuals.

Spurring credit growth has become a key concern for several GCC countries, as the financial crisis has led banks to dramatically cut back on their lending to the private sector. The fear is this could reduce the strength of any economic recovery.

The IMF estimates Kuwait’s economy shrank by 1.6 per cent in 2009, and that it will grow by 3.2 per cent in 2010.

The cut in interest rates follows a slight fall in the country’s inflation rate. In 2009, inflation averaged 4.6 per cent, according to the IMF, and in 2010 is forecast to be 4.4 per cent.

The rate cut is the sixth made by the central bank since October 2008.