Central Bank of Bahrain cuts overnight lending rate

TDT | Manama

The Central Bank of Bahrain yesterday delivered an emergency interest rate cut to help prop-up the Kingdom’s economy from the negative impacts of COVID-19 outbreak. In a statement, the top bank said it is cutting, effective immediately, the overnight lending rate, by 1.55 per cent, from 4.00 pc to 2.45pc.

The move, CBB said, is aimed at ensuring the smooth functioning of the money markets in Bahrain. “The adjustment to the lending rate represents the continuous measures taken by the CBB to ensure the smooth functioning of the money markets in Bahrain,” the statement said. The top bank further assured that it continues to monitor the “global and local market developments closely to take any further necessary actions”. Earlier, CBB instructed all banks and financial institutions to probe rescheduling loans and postponing loan instalments.

Besides, all retail banks were ordered to refrain from blocking customer accounts if they come to know that the customer has lost his or her employment or has retired when the customer has a financing arrangement with the bank. The CBB prohibited such practice by retail banks, regardless of whether or not contractually the bank has the right to take such action. 

Second this month

The latest rate cut is also the second this month by the Kingdom’s top bank in a bid to head off the economic damage the new coronavirus is wreaking on the world economy. The earlier decision followed a surprise move by the US Federal Reserve, making Bahrain trim its oneweek deposit facility from 2.25 per cent to 1.75pc. Tracking fed’s move, the CBB also cut the overnight deposit rate from 2.00pc to 1.50pc and adjust the one-month deposit rate from 2.45pc to 2.20pc. However, lending rates were kept unchanged at 4.00pc. The US Fed surprised investors by cutting rates by 50 basis points to a target range of 1.00pc to 1.25pc, two weeks ahead of a regularly scheduled policy meeting.

The unusual move was also the first between meeting cut since the height of the global 2008 financial crisis. “My colleagues and I took this action to help the US economy keep strong in the face of new risks to the economic outlook,” Fed Chair Jerome Powell told reporters.

Saudi, UAE

Saudi Arabia and UAE central banks, which also like Bahrain had their currencies pegged to the US dollar, announced similar cuts based on the Fed move. Saudi Arabian Monetary Authority (SAMA) said in a statement that it has decided “to cut the repo (rate at which the central bank lends to banks) rate by 50 basis points from 2.25pc to 1.75pc and the reverse repo (rate is the rate at which the central bank of a country borrows money from commercial banks) rate by 50 basis points from 1.75pc to 1.25pc.” The UAE central bank said its repo rate for borrowing short-term liquidity had also been cut by 50 bps.

Kuwait suspends fees

Meanwhile, Kuwait, which has its dinar rate linked to a basket of currencies in which the US dollar has more than 80 per cent weightage, yesterday said it is suspending fees on ATMs, point of sale devices, and other electronic channels for three months.

Kuwait has also increased its contactless payment limit up to 25 Kuwaiti dinars ($81.31) and is providing “financial and moral compensation” to all workers in the banking sector during the holidays. Latest report says, China remains the hardest-hit overall with more than 80,000 cases and over 3,000 deaths, out of a global total of 117,339 cases and 4,251 deaths across 107 countries and territories.