September 26, 2018 / 7:21 PM / a year ago

UPDATE 1-Kuwait central bank keeps rates on hold after Fed hike

(Adds central bank statement on policy)

DUBAI, Sept 26 (Reuters) - Kuwait’s central bank decided to keep its key discount rate unchanged at 3.0 percent, it said on Wednesday.

The decision followed the announcement of a 25 basis point interest rate hike by the U.S. Federal Reserve.

In contrast to the other rich Gulf Arab oil exporting states, which peg their currencies to the U.S. dollar and have little room for an independent monetary policy, Kuwait manages its dinar against an undisclosed basket of currencies in which the dollar plays a major role.

This gives it more room to diverge from U.S. policy if it believes domestic economic conditions warrant that. Three months ago, when the Fed last raised rates, the Kuwait central bank also kept its key rate unchanged.

In a statement on Wednesday, central bank governor Mohammad al-Hashel said that instead of raising its discount rate, the bank would use other policy tools to manage the money market, such as issues of bonds and Islamic instruments, acceptance of term deposits from local banks, and direct interventions.

He noted that domestic banking credit was expanding only modestly because of tepid growth in the non-oil areas of the economy.

Recent data has shown the central bank is able to maintain a stable margin between rates on dinar and dollar deposits in order to keep the local currency attractive to investors, and also a stable margin between banks’ dinar loan and deposit rates, he added. (Reporting by Andrew Torchia Editing by Gareth Jones and Robin Pomeroy)

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