Tuesday, October 12, 2021

Kuwait to start unwinding COVID crises measures

     Kuwait's central bank became the second in the Gulf region to tighten its monetary policy stance this year, saying it had "decided to start unwinding measures imposed since April 202 to counter the COVID-19 pandemic, after the banking sector's success in overcoming the first year of the crises."
     Last year the Central Bank of Kuwait (CBK) cut its benchmark discount rate twice in March by a total of 1.25 percentage points, the same month another 66 central banks, including the U.S. Federal Reserve, cut rates by a total 92 times to support economic activity during the height of the pandemic.
     The following month, CBK then took several macro prudential initiatives to help the ability of banks' to offer credit and loans, including allowing the banks to release capital conservation buffers and lowering the credit risk weight when calculating capital adequacy ratios. 
     In October 2020 CBK also cut all interest rates that cover the entire yield curve of up to 10 years, including the repo rate, term deposit rates, direct intervention rates and those on public debt in response to a decline in U.S. rates, which it said was putting upward pressure on its dinar.
     In its statement, CBK did not specify which crises measures it was unwinding, only saying it had earlier amended regulatory instructions and macro prudential tools to ward off repercussions of the pandemic.
     Last month the central bank of the United Arab Emirates (UAE) began what it said was a "gradual and well-calibrated" withdrawal of extraordinary stimulus measures taken last year as the gradual recovery of the economy meant there would be less need for extraordinary stimulus.
    After plunging in March last year, Kuwait's dinar has slowly firmed against the U.S. dollar until last month when it began giving up some of its gains.
     Today the dinar was trading at 0.302 to the U.S. dollar, down 0.9 percent this year but up 4.3 percent since March 26, 2020.
     Between 1975 and 2002 Kuwait's dinar was pegged to a weighted basket of currencies of its major trading partners, but from 2003 to 2007 CBK dropped that peg and pegged it directly to the U.S. dollar.
      In 2007 CBK then reverted to its earlier exchange rate policy of pegging to dinar to an undisclosed weighted basket of currencies to curb growing inflationary pressures.



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