UPDATE 2-Kuwait central bank cuts discount rate to 2 pct

Wed Oct 3, 2012 3:45pm EDT

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By Sylvia Westall

KUWAIT, Oct 3 (Reuters) - Kuwait's central bank is cutting its discount rate by 50 basis points to 2 percent to help bolster the banking sector and support the economy, state news agency KUNA said late on Wednesday.

The cut, which will take effect from Oct. 4, is the first move since February 2010, when the bank cut the discount rate by 50 basis points to 2.5 percent, according to Reuters data.

The central bank wants to help create a good atmosphere for the banking sector and improve the performance of non-oil sectors of the economy, KUNA said, citing Central Bank Governor Mohammad al-Hashel.

"The central bank continues to follow the latest developments in the local economy closely and will not hesitate to take appropriate action to enhance elements of sustainable growth in various economic sectors," KUNA quoted him as saying.

The decision, cutting the rate the central bank charges other banks to borrow from it, will help ensure the competitiveness of the dinar currency, Hashel said. He also noted a decline in inflationary pressures, KUNA added.

The stock market slumped to an eight-year low in mid-August, underperforming most other bourses in the Gulf, largely because of the political situation.

Kuwait has seen 10 governments since early 2006 due to a long-running political row between the elected parliament and government, which is dominated by the Al-Sabah ruling family.

In July Kuwait's biggest bank reported a surprise 42 percent drop in second-quarter profit, which some analysts took as a sign of the damage being wrought by a political stalemate in the Gulf Arab state.

The chief executive of National Bank of Kuwait blasted the country's political deadlock in a rare public outburst for the region.

The turmoil has held up investment in the OPEC member state including a 30 billion dinar ($108 billion) economic development plan aimed at diversifying the heavily oil-reliant economy and attracting foreign investment.

In some of his first comments to international media, Hashel said on Monday the government should take all necessary measures to cut public spending and focus on investing in projects that will benefit the economy in the long-term.

He said growth would be around 6.5-6.6 percent this year in Kuwait, one of the world's richest countries per capita thanks to its oil wealth and small population.

Kuwait booked a record budget surplus of 13.2 billion dinars ($47 billion) in the fiscal year that ended in March thanks to robust oil income and lower spending than planned, but economists say it needs to kick start investment in order to ensure long-term economic stability.

Earlier on Wednesday the cabinet asked Kuwait's ruler to consider dissolving parliament in a widely expected bid to clear the way for a new election and end the months of political deadlock. (Additional reporting by Andrew Torchia, Editing by Alison Williams)

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