Press Releases

H.E. the Governor of the Central Bank of Kuwait (CBK), Sheikh Salem Abdulaziz Al- Al-Sabah announced a rise in the exchange rate of the Kuwaiti dinar against the US dollar to 289.14 fils/dollar from 292 fils/dollar, as of 11-5-2006. H.E. the Governor explained that the decision reflects CBK's eagerness to preserve the purchasing power of the Kuwaiti dinar against the currencies of the trading partners of the State of Kuwait, thereby contributing to the containment of imported inflationary pressures. In this connection, H.E. the Governor noted the upward trend witnessed in the general levels of domestic prices, as expressed by the price indices prepared by the Ministry of Planning, mentioning that data on both the Consumer Price Index -a measure of the general cost of living- and the Wholesale Price Index, especially in regard to imported goods, showed a marked acceleration during 2005, which was owed in large part to the decline in the exchange rate of the US dollar against other major currencies; noting also that the Kuwaiti dinar is pegged to the US dollar within specified margins. In light of the above, the decision to raise the exchange rate of the Kuwaiti dinar against the US dollar aimed at enhancing the purchasing power of the KD against the other currencies, so as to curb the inflationary pressures resulting from the rise in the exchange rate of these currencies against the US dollar.

H.E. the Governor clarified that the above rise in the exchange rate of the KD against the US dollar exhausts the allowed margin of movement of ±3.5% around the parity rate of the KD against the US dollar set at 299.63 fils/dollar in accordance with the decision of CBK's Governor issued on 5 January 2003. Within this context, H.E. the Governor confirmed that CBK will continue monitoring all developments of relevance to the purchasing power of the Kuwaiti dinar, particularly the developments in the exchange rates of the Kuwaiti dinar against the other major currencies, and will not hesitate to apply the instruments available to it for enhancing the stability of these exchange rates and curbing imported inflationary pressures so as to preserve the purchasing power of the national currency.

Furthermore, H.E. the Governor of the Central Bank of Kuwait announced that the CBK decided to raise its intervention interest rate which influences the interest rates on customer deposits with local banks, by a quarter percentage point as of 11-5-2006, while keeping its discount rate, to which are linked the maximum interest rates on loans extended by the local banking and financial units to their customers, unchanged at 6%. H.E. the Governor explained that the discount rate represents a pivotal rate to which are linked, within specific margins, the maximum interest rates on KD-lending transactions at the local banking and financial units, and has no direct bearing on interest rates on deposits. Accordingly, keeping the discount rate unchanged necessarily maintains the maximum interest rates on contracted loans at their levels since November 2005, bearing in mind that the interest rates on contracted loans may not reach these maximum limits. H.E. the Governor noted that no change was made to the discount rate of 6% since November 2005; accordingly, no change occurred in the maximum interest rates on KD-lending transactions at the local banking and financial sector units since that date.

H.E. the Governor explained that the intervention interest rate is the rate which CBK applies in dealing with local banking and financial units in regard to accepting deposits from them, within its efforts towards managing domestic liquidity. Through moving the intervention interest rate, the CBK seeks to influence the interest rates applied by local banks on customer deposits. H.E. the Governor added that the CBK moves the intervention interest rate to enhance the competitiveness and attractiveness of the KD as a store of national savings, thereby solidifying the base of KD deposits with the local banking and financial sector units, noting that these units draw on these deposits to meet the financing requirements of the various sectors of the national economy. H.E. the Governor also mentioned that the interest rates on the various monetary policy instruments available to CBK, encompassing the Public Debt instruments, CBK's Bonds, and repurchase operations, are linked to the intervention interest rate and move along with it.

H.E. the Governor clarified that the CBK repeatedly raised the intervention interest rate without changing the discount rate since November 2005, to provide an incentive for local banks to attract customers' KD deposits. These raises of the intervention interest rate were accompanied with intensive monitoring by CBK of local banks' performance in this regard, and resulted in a clear improvement of interest rates on KD customers' deposits with local banks, and a tangible growth in the balances of these deposits.

H.E. the Governor noted that this last increase in the intervention interest rate was in pursuance of CBK's efforts towards ensuring the conformity of the domestic interest rates with the upward trend in interest rates on major currencies, particularly the US dollar, so as to ensure the competitiveness and attractiveness of the KD as a store of national savings. H.E. also confirmed CBK's readiness to move again, if need be, to influence domestic interest rates so as to maintain such conformity, while taking into consideration the domestic economic, monetary and banking developments.

H.E. the Governor concluded his statement by confirming that the CBK was keen on fulfilling its role in maintaining monetary stability in the national economy, preserving the purchasing power of the national currency, and enhancing its competitiveness and attractiveness as a store of national savings.