Central Bank of Bahrain cuts key interest rate

Manama

Bahrain’s top bank has joined Saudi Arabia and the UAE in announcing rate cuts tracking a surprise move by the US Federal Reserve to trim rate in a bid to head off the economic damage the new coronavirus is wreaking on the world economy. Bahrain’s Central Bank announced it’s cutting key policy interest rate on the one-week deposit facility from 2.25 per cent to 1.75pc.

The CBB also cut the overnight deposit rate from 2.00pc to 1.50pc and adjust the onemonth deposit rate from 2.45pc to 2.20pc. The CBB lending rates remain unchanged at 4.00pc. Saudi Arabia and UAE central banks, which also like Bahrain had their currencies pegged to the US dollar, announced similar cuts. Kuwait has its dinar rate linked to a basket of currencies in which the US dollar has more than 80 per cent weightage.

“In light of global developments, the Saudi Arabian Monetary Authority (SAMA) 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,” SAMA said in a statement. The UAE central bank said its repo rate for borrowing shortterm liquidity had also been cut by 50 bps. The US Fed surprised investors by cutting rates by 50 basis points to a target range of 1.00pc to 1.25pc on Tuesday, 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. The rate cut, however, failed to arrest a sell-off in U.S. equities and sent benchmark 10-year Treasury yields crashing to a record low 0.906pc, further reducing the appeal of the dollar. Sentiment also took at a hit after G7 finance ministers issued a statement on Tuesday that stopped short of calling for new government spending or coordinated central bank interest rate cuts.