Bahrain central bank cuts bank reserve requirement to 5%

Gulf state's bank chiefs cut requirement from 7% as inflationary pressures ease.
Bahrain central bank cuts bank reserve requirement to 5%
By Frederik Richter
Tue 03 Mar 2009 03:08 PM

Bahrain's central bank loosened bank lending curbs on Tuesday due to easing inflationary pressures, the latest move in the oil-exporting Gulf region to help unlock credit markets.States across the world's biggest oil exporting region, including Saudi Arabia, have been slashing interest rates, setting up emergency funding facilities for banks and easing lending curbs to help banks weather the financial crisis.

Bahrain's central bank said on Tuesday it had lowered the reserve requirement for banks to five percent from seven percent.

"In recent months, clear evidence has emerged that inflationary pressures - both in consumer and asset prices - have abated significantly," the central bank said in a statement.

"Therefore required reserves are lowered back to their previous level."

Hoping to support credit growth, Saudi Arabia and Oman have also lowered reserve requirements since November, which means banks are required to keep less money in their vaults, thus freeing up more cash to lend.

Many banks in the region have adopted a cautious approach to new lending as they write down investments and make provisions for bad loans.

Bahrain's central bank slashed all key interest rates by 75 basis points on Dec. 18, following cuts in October and November.

The rate cuts helped ease pressure on the island kingdom's one-month interbank offered rate, which was 1.9883 percent on Tuesday, down from almost four percent last October.

Inflationary pressures are coming down across the Gulf as oil prices slump to around $40 a barrel, less than a third of their record level last July.

Inflation in Bahrain is the lowest in the Gulf Arab region. It hit 5.1 percent in December, the latest data available, from 4.3 percent in November.

Bahraini money supply growth, an indicator of future inflation, grew at its slowest pace in 17 months in November. (Reuters)

For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.