Kuwait keeps rates steady after Fed hike

KUWAIT CITY, Sept 21: The monetary policy of the country has once again demonstrated its remarkable flexibility and adaptability to changing circumstances. This was most evident in the recent strategic decision of the Central Bank of Kuwait not to raise domestic interest rates. This measured move by Kuwait followed the decision of the US Federal Reserve to raise its benchmark interest rate, for the first time in more than three years, by 0.25 percent, bringing it to a range of 3.5 percent to 3.75 percent.

The divergence highlights the differing economic approaches of the two parties and underscores the independence of Kuwait’s financial decision- making, which is grounded in a meticulous assessment of domestic needs. In a related context, a financial and legal advisor told the newspaper that the decision of Kuwait not to mirror the US monetary policy of raising interest rates stems from the Central Bank of Kuwait’s system of pegging the Kuwaiti Dinar to a diversified basket of global currencies, rather than exclusively to the US dollar. He clarified that this integrated system affords the monetary policy of Kuwait considerable flexibility and independence in formulating decisions based on local inflation indicators, domestic economic growth rates, and liquidity levels within the banking sector, thereby avoiding automatic reliance on decisions issued by Washington. He cited the major competitive advantage of the Kuwaiti economy — the deep understanding of the Central Bank of Kuwait of the local market’s unique characteristics and the safeguards it employs. He added that the robustness of the banking sector and abundant local liquidity stand out as key pillars of this stability. He said a significant portion of the massive deposit base held by Kuwaiti banks consists of low- or zero-cost current and savings accounts.

He indicated that this gave the Central Bank of Kuwait considerable flexibility to maneuver without being compelled to match high US interest rates solely to prevent capital flight. He pointed out that maintaining the discount rate at 3.5 percent in 2026 while supporting development efforts contributed to decoupling the currency from its exclusive link to the US dollar. He explained that this approach aims to protect the purchasing power of the Kuwaiti Dinar. “Consequently, the Central Bank of Kuwait focused on curbing domestic inflation without stifling credit directed toward the private sector or hindering the economic cycle. This strategy is corroborated by the latest official monetary data for 2026, which showed the discount rate holding steady at 3.5 percent. Such monetary stability has fostered the growth of credit facilities and supported various business sectors. The Kuwaiti experience demonstrates a proven ability to balance domestic growth requirements with the need to navigate geopolitical and global shifts through a cautious and measured approach.

This has steered the national economy toward a phase of robust financial and monetary stability,” he elaborated. He stated that despite the temporary 4.6 percent contraction in gross domestic product (GDP) during the first quarter, driven by adherence to oil production quotas, international estimates point to the national economy’s high resilience. He revealed that GDP growth is projected to reach 2.8 percent, bolstered by anticipated improvements in crude oil production rates and increased business momentum. He asserted that the Central Bank’s decision not to mirror the successive hikes in US interest rates has effectively spared local businesses and companies in Kuwait from bearing massive additional financing burdens. “Had the Central Bank raised rates at the same pace as the US, borrowing costs for commercial firms, service providers, and local manufacturers would have surged to record levels. Such a scenario would have prompted these companies to pass financing costs on to consumers by raising the prices of final products and services. Instead, maintaining a stable discount rate kept production and operating costs within normal limits, resulting in clear price stability for essential food items, construction materials and services,” he concluded.

By Najeh Bilal Al-Seyassah/Arab Times Staff