Kuwait to keep currency basket peg

Kuwait's central bank (CBK) will keep pegging its dinar to a currency basket for the foreseeable future and setting a deadline for a planned Gulf single currency is not possible, Governor Sheikh Salem Abdul-Aziz al-Sabah said on Thursday.

Kuwait is the only Gulf Arab country tracking a currency basket after it broke ranks with fellow dollar-pegging oil producers in 2007 to keep surging inflation in check. It plans to form a currency union with Saudi Arabia, Qatar and Bahrain.

The world's fourth largest oil exporter presides this year over the six-nation Gulf Cooperation Council, a loose economic and political bloc, which also includes the United Arab Emirates and Oman.

Sheikh Salem's said, "The present exchange rate arrangement is serving the Kuwaiti economy well and there is no reason for, or net benefit of, changing it."

"Pegging the KD to a specially-weighted and undisclosed basket of currencies of major trade and financial partners of the State of Kuwait provides the CBK with relatively more room to manoeuvre in designing and conducting its monetary policy."

"In particular, the current KD exchange rate policy helps insulate the domestic economy from external inflationary pressures associated with fluctuations in the exchange rates of the major currencies."

It is worth pointing out that the February reduction in Discount Rate is the latest addition to a sequence of steps undertaken by the Central Bank of Kuwait to further strengthen the financial sector and enhance its abilities, as well as other economic sectors', to overcome challenges posed by the global economic and financial crisis.

Available indicators, both domestic and external, point to a significant weakening of inflationary pressures relative to their peak back in late 2008.

Recently the International Monetary Fund projected a CPI inflation in Kuwait of 4.8 per cent in 2010. That projection appears to be quite reasonable.

While it is neither possible nor advisable at this stage to mention an exact date, we do look forward to increased efforts towards preparing the groundwork so that the single currency can materialise."

"It is vital that we do it right, rather than doing it quick, Sheikh Salem said"