KUWAIT CITY - As anticipation builds for a potential interest rate cut by the US Federal Reserve in its upcoming meeting on September 17-18, Kuwait’s financial market is experiencing a ripple effect.

Both companies and individuals are holding off on their loan plans, choosing instead to wait for clarity on the Federal Reserve’s decision and its subsequent impact on the Central Bank of Kuwait’s policies.

According to informed sources, many clients have paused their financing plans after preliminary discussions with banks, hoping to benefit from potentially lower borrowing costs shortly.

Meanwhile, banks have observed a notable uptick in demand from individuals renewing their one-year deposits. Customers are opting to lock in rates similar to those on their expired or nearly expired deposits, reflecting a cautious approach in the face of uncertain interest rate trends. In a recent development, several banks have reduced their interest rates on one-year deposits to what is known as “counter pricing,” a level set by regulatory guidelines that cannot be lowered further.

These rates have dropped to 4.25 percent, down from previous rates of 4.6 percent and 4.9 percent. This reduction comes as part of a broader global shift away from the monetary tightening cycle that began in March 2022. In response to these market changes, officials from the Central Bank of Kuwait have recently engaged with local banks to ensure adequate liquidity levels. They confirmed that banks are comfortably managing liquidity in both dinars and dollars and are not facing any significant financing or regulatory pressures. This reassures the market about the overall soundness of the banking sector’s liquidity.

Additionally, the Central Bank has directed banks to restrict the conversion of loans granted in dinars into dollar purchases, except in cases where the dollar funds are needed for pre-determined customer requirements. This move aims to prevent speculative or unscheduled investments and ensure that foreign currency is used solely for its intended purposes. The Central Bank’s policies emphasize maintaining the stability of the Kuwaiti dinar by using a weighted basket of currencies from countries with significant trade and financial relationships with Kuwait. This strategy has proven effective in stabilizing the dinar’s exchange rate against major global currencies. Overall, while the market remains cautious and waits for the Federal Reserve’s next move, the Central Bank of Kuwait continues to regulate financial activities to support stability and prevent speculative practices.

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