The Interest Rate

On March 15th 2020, the US Federal Reserve announced the reduction of the base interest rate on the US Dollar by 100 base points, i.e. from 1.25% to 0.25%. The Federal Reserve is the only central bank with the flexibility to change the interest rate. By its significant and exceptional reduction, it lost its flexibility. And by allocating US$ 700 billion for quantitative facilitation, it has gone to the furthest possible limit in consuming its resources, i.e. it used most of its defenses to prevent the repercussions of the Coronavirus crisis from hitting the financial sector and then the real economy.

Kuwait, on the other hand, has suffered from two blows: The Coronavirus and the oil price war. Under such circumstances, the last thing it needs is the populist parliamentary tendency to interfere in loan issues and undermine the financial stability of the country for the sake of a parliamentary seat. The Central Bank of Kuwait’s reduction of the discount rate by one hundred base points made the discount rate at its lowest level ever. This is the third reduction against five Federal cuts since July 2019 and the Kuwaiti Dinar has maintained a large margin in support of its repatriation.

The global economy may or may not overcome its crisis, but the two-blow economy, i.e. the domestic economy, which has missed all opportunities to reform over time, remains in need of fundamentally different management, a management that buys the security and future of a country which is exposed to a crisis that may cost it its stability, and stops buying the support of those who are unworthy just for the sake of retaining a high position.