Kuwait’s central bank kept its key interest rate unchanged on Wednesday, citing the need to boost economic growth, despite a 0.25% rate hike by the U.S. Federal Reserve, which usually influences Kuwaiti policy. The Kuwaiti decision set the country apart from other wealthy Gulf Arab oil exporters in the region. Saudi Arabia, the United Arab Emirates and Bahrain raised their rates within minutes of the Fed’s announcement. Qatar was expected to follow suit, and Oman has been raising its rates gradually. Kuwait, which manages its dinar currency against a U.S. dollar-dominated basket of currencies, imitated the Fed immediately after three U.S. rate hikes that started in December 2015. But in June this year it kept its discount rate flat even though the Fed tightened policy again, and after the latest U.S. hike was announced on Wednesday, Kuwait again decided to leave its rate unchanged. “The central bank left the discount rate unchanged at 2.75% to consolidate an atmosphere conducive to the recovery of economic growth rates,” the central bank said in a statement. Central bank governor, Mohammad al-Hashel, said in October that he looked at two key factors when making interest rate decisions: Kuwaiti banks’ interest rate margins and dinar deposit rate spreads with USD deposits. On Wednesday, the central bank said its policy decision was based partly on the ability of local banks to absorb any effort to raise interest rates on their dinar deposits. 
 
Our comment: We believe the Central Bank of Kuwait’s focus on supporting economic activity, coupled with a comfortable fiscal and external position that is ensuring ample liquidity in the banking system drove the authorities’ decision not to increase rates for the second time in a row. The fact that Kuwait runs a currency basket currency regime also allows it a margin of flexibility in setting its monetary policy, in our view.