Wednesday, May 29, 2024
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KUWAIT CITY: Following a recent decision to raise the discount rate by 0.25 percent, the Central Bank of Kuwait (CBK) has instructed banks to increase their pricing for individual deposits in dinars by at least one eighth of a percentage point. This move is aimed at enhancing the appeal of the national currency in light of the widening margin between the discount rate and the interest on the dollar, which currently stands at around 1.25 percent. The CBK’s decision to raise the discount rate from 4 to 4.25 percent, effective July 27, underscores its commitment to managing monetary policy amid prevailing economic conditions.

According to sources, all banks have adjusted their pricing scales for new customer deposits in response to the CBK’s directive. The added percentage varies among banks, reflecting their respective pricing strategies. The interest rates offered to customers can differ significantly between banks, as each institution caters to its liquidity needs and overall banking strategy.

Technical considerations are also at play in determining special interest rates. Higher rates are typically extended to clients with elite or “VIP” deposits, which range from 500 thousand to one million dinars and beyond. These deposits are characterized by stability, longer bonding periods of at least one year, and often involve clients who are valued and loyal customers. Competing banks aim to attract such deposits by offering special rates. Furthermore, banks must adhere to liquidity ratios set by the CBK, which may vary among institutions.

The sources also noted that the highest interest rates are generally granted for long-term deposits, lasting one year or more. In contrast, short-term deposits, such as daily and weekly options, typically command lower interest rates. The CBK closely monitors deposit movement and pricing trends, ensuring adherence to the rates set for adjustments.

The demand for individual deposits, particularly from elite clients, remains strong in Kuwait’s banking sector. Elite clients’ deposits are considered stable funds, often difficult to move from one bank to another due to established relationships and the attractive rates offered. Commercial deposits, on the other hand, are generally less stable and more mobile, often prioritizing the highest possible rate. The CBK’s efforts to balance these dynamics while supporting the national currency underscore its commitment to maintaining a stable and vibrant financial sector.

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