KUWAIT – Kuwait’s central bank cut its repurchase rate by 12.5 basis points on Sunday after warning speculators against betting on a revaluation of the oil exporter’s dollar-pegged dinar currency.
The move, four days after the bank said it may act against currency speculators, takes the repo rate to 5.75 percent, making it cheaper for Kuwaiti banks to borrow money for one week from the central bank.
That would put more dinars on the market, easing upward pressure on the exchange rate. It also raises the risk of inflation, a factor that prompted Kuwait, which has a tenth of the world’s oil reserves, to revalue its currency last year.
‘It’s a catch-22 situation for Kuwait,’ said Steve Brice, regional head of research at Standard Chartered in Dubai, adding that concerns about inflation appeared to have prevented the central bank from making a bolder move.