ZURICH, 1 April 2006 — Kuwait has not changed its monetary policy, which is focused more on domestic conditions than the US Federal Reserve’s rate tightening path, the Kuwaiti central bank governor said yesterday.
“There hasn’t been any change in the interest rate policy of Kuwait,” said Salem Abdul Aziz Al-Sabah, the governor of the central bank of Kuwait told international bankers, when asked why no rate changed followed the Fed’s rise this week.
He said consumer prices have been gradually increasing and recently Kuwait has increased rates twice in line with the Fed but three times it has not followed the US central bank.
“We are much more concerned with the domestic situation,” he said.
The Kuwaiti dinar is pegged to the dollar with a 3.5 percent plus or minus trading band and the Central Bank of Kuwait raised its discount rate by a quarter percentage point to 6.0 percent on Nov. 2, the day after the Fed increased its Fed funds rate by the same amount to 4.0 percent.
However, Kuwait did not follow further US rate increases in December, January and earlier this week which took the key rate to 4.75 percent.
In a speech to the Institute of International Finance Al-Sabah called the recent drop in stock market prices in the Gulf region “a significant correction”.
“Balancing the needs of a growth-friendly environment with the risks of an inflated asset market requires vigilance and prudence. The current challenge then is not to find a soft landing but rather to cruise through turbulence. On this journey autopilot is not an option,” he said.
The governor also said that so far plans to launch a single currency in the Gulf in 2010 remain on track despite the lack of a final agreement on convergence criteria. “So far we are not seeing any delay ... We believe this target could be achieved so far,” he said. He added there should be an agreement next month on the criteria.