Qatar cenbank cuts key interest rates by up to 0.5%

Moved aimed at stimulating banking activities and boosting lending to country's private sector
Qatar cenbank cuts key interest rates by up to 0.5%
By Reuters
Wed 10 Aug 2011 05:33 PM

Qatar, which pegs its currency to the US dollar, slashed key interest rates by up to 50 basis points for the second time since April on Wednesday, a day after the US Federal Reserve pledged to keep US rates low for at least two more years.

The cuts, which brought the main overnight deposit rate to 0.75 percent from 1 percent, followed an April policy measure aimed at stimulating banking activities and boosting lending to the private sector.

The overnight lending facility and the repo rate were both cut to 4.5 percent from 5 percent previously, the central bank website showed on Wednesday.

The central bank did not give a reason for the cuts.

Qatar, like all but one Gulf Arab oil exporters, pegs its currency to the greenback which limits the central bank's flexibility to move far from the US benchmark rate as that could trigger larger capital flows and put the peg under pressure.

Kuwait alone follows a basket of currencies instead of the US dollar peg.

The Fed took the unprecedented step of promising to keep interest rates near zero for at least two more years and said it would consider further steps to help growth.

"They are likely taking their cue from the Fed statement yesterday," said Farah Ahmed Hersi, senior economist at Islamic lender Masraf Al Rayan based in Doha.

"We're entering a period of expansionary monetary policy where rates are coming down because economic growth is in doubt in many parts of the world, particularly the US and the eurozone."

This the third time in a year the Gulf Arab state, the world's largest liquefied natural gas exporter, has cut rates. Last August, it trimmed its deposit rate by 50 basis points but left other rates unchanged.

In January, the central bank capped liquidity volumes it was willing to absorb from banks, giving them an incentive to pour excess cash into a QR50b ($14bn) government bond also on offer. The January move pushed riyal currency forwards to two-year lows.

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