The Central Bank of Kuwait said Monday it keeps a close eye on global economic and monetary developments as well as geopolitical trends when making monetary decisions.

The CBK adopts a resilient monetary policy that adapts to the requirements of the Kuwaiti economy, according to a CBK press release.

In its World Economic Outlook, the International Monetary Fund (IMF) forecast in October that global inflation would to rise from 4.7 percent in 2021 to 8.8 percent in 2022.

Accordingly, the CBK had to make its monetary policy more stringent as is the case with the majority of central banks around the globe, the statement noted.

The CBK gained praise from international credit rating agencies and the IMF in terms of professional employment of monetary policy and auditing policy tools as well as the success of precautionary measures in strengthening the financial and monetary stability.

The recent IMF mission to Kuwait acknowledged that the CBK was able to contain inflation rate and limit the hikes of prices of food and energy through stringent monetary measures and government subsidies.

The central banks worldwide draw up their respective monetary policies and decisions in keeping with technical considerations and local economic data with a view to addressing possible imbalances, maintaining the stability of the exchange rate and the prices of commodities, and ensuring sustainable economic growth.

One of the most prominent characteristics of the Kuwaiti economy is the smallness of its size, which make it more vulnerable to be affected by the trends of the global economy and the movement of capital.

Further, Kuwait’s open economic policy relies heavily on oil revenues as the main source of the national income and depends of imports to meet the needs of the domestic market of commodities and services.

The CBK monetary policy, based on provisions of Act 32 (1968), aims to ensure financial stability, free trading in foreign currencies, and a crediting policy geared towards economic growth, the statement went on.

The CBK reaffirmed pursuit of monetary policy in institutional frameworks and in keeping with forecasts of economic growth and the needs of the local market.

Regarding the interest rates, the statement noted that the CBK sets the interest rate of the Kuwaiti Dinar (KD) in line with the rates of the world’s major currencies in order to minimize the possible adverse impacts on the local economy in case of the existence of unjustifiable margins.

The consistency between the KD interest rate and those of the foreign currencies helps maintain the competitive edge of the local currency as a tool of savings and enables the local banks to meet the financing needs of their clients.

On the deduction rate, the statement said the CBK adopts a phased approach to moving the deduction rate to avert any dramatic fluctuations in the interest rates and minimize the costs to the local economic sectors.

Though the deduction rate is central in Kuwait, it is not the sole gauge interest rate for the CBK in its transactions with local banks and regulating the liquidity levels of the banking sector.

To compare the stated CBK deduction rate with the interest rates of other central banks needs to take stock of the role of interest rates in each economy.

Available data from the world’s major economies show that those economies suffer from inflation rates higher than their respective stated interest rates.

For example, the US inflation rate is 2.6 percent higher than the Federal funds, whereas the inflation rate in Kuwait is 0.32 percent lower than the deduction rate.

In case of including the interest rates on consumer loans and commercial loans with terms of more than one year, the inflation rate will be lower than the interest rates by 3.32 percent and 4.32 percent, respectively.

Dealing with the average economic data of 2022, the statement said the interest rate on KD deposits of local bank clients in Kuwait for one month rose from 1.022 percent in March to 3.285 percent in November.

The interest rate for three-month deposits in KD went up from 1.166 percent in March to 3.916 percent in November.

The average interest rate of one-month deposits in US dollar went up from 0.242 percent in March to 2.677 percent in November while rate of three-month deposits in USD went up from 0.412 in March to 3.146 percent in November.

Accordingly, the margins narrowed between the interest rates of KD deposits and those of USD deposits in the aforesaid period.

Meanwhile, the crediting facilities for expatriate residents in Kuwait grew by 9.5 percent from KD 42.8 billion (nearly USD 141.2 billion) by the end of November 2021, to KD 46.9 billion (USD 154.7 billion) late last November.

Affirming the solid financial position of the banking sector, the CBK statement noted that local banks maintained a capital adequacy rate of 18 percent and a high solvency rate.

The inflation rate in Kuwait kept slowing down on an annual basis, and declined from 4.71 percent in last April to 3.18 percent in last November at a time when global economies suffer from soaring inflation rates, the statement added.

Source: Kuwait News Agency