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Tue 15 Sep 2009 12:29 PM

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Bahrain central bank cuts interest rate by 25 points

Repo and lending rates also cut to 2.25% to ensure smooth money markets.

Bahrain's central bank lowered key interest rates on Tuesday, in its first reduction since December, in a bid to ensure smooth functioning of money markets and underpin growth.The central bank cut its one-week deposit facility to 0.50 percent from 0.75 percent while keeping its overnight deposit facility at 0.25 percent. It also lowered its repo and lending rates to 2.25 percent from 2.75 percent.

"It is a fully justified decision," said Marios Maratheftis, regional head of research at Standard Chartered.

"Overall, the focus in the region, not just in Bahrain, is on growth, not inflation. The problem is lower growth... and there is plenty of room for monetary policy to become accommodative."

Bahrain's central bank last cut rates on Dec. 18, slashing all key interest rates by 75 basis points in response to a US Federal Reserve cut.

Most Gulf states peg their currencies to the U.S. dollar and have generally tracked reductions in U.S. Federal Reserve rates, which are now at virtually zero.

Since the global financial crisis deepened in the autumn, regional central banks have slashed rates and adopted other measures -- including reduce bank reserve requirements -- to unlock credit markets and spur lending.

In addition, the central bank said it would offer a foreign exchange swap facility with a one-month maturity. It had also previously offered one with a one-week maturity.

"The facility was initially introduced to help ensure the smooth and effective functioning of the money markets in Bahrain, an objective which has been successfully achieved," the central bank said in a statement. (Reuters)

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