Mohammad Y Al Hashel, Governor, Central Bank of Kuwait : Interview

Interview : Mohammad Y Al Hashel

In what ways could monetary policy stimulate and encourage growth in non-oil GDP?

MOHAMMAD AL HASHEL: We have already kept the interest rate as low as possible in order to help support credit growth in the non-oil sector of the Kuwaiti economy. In 2017 we raised the benchmark interest rate once, by 25 basis points, notwithstanding the three hikes undertaken by the US Federal Reserve.

We raised our policy rate again by 25 basis point in March 2018, pushing the discount rate to 3%; however, it was to ensure that the Kuwaiti dinar remained an attractive source of domestic savings. In general, our approach has been to encourage credit growth, particularly in the productive business sector.

How do you assess the challenges of managing the interest rate in the short to medium term?

AL HASHEL: When we set interest rates, we are trying to strike a balance between healthy private sector credit growth and preserving the attractiveness of the Kuwaiti dinar as a source of domestic savings. This task is a particularly challenging one when our domestic economic conditions differ from those of our major trading partners or some of the world’s most advanced economies.

For example, as the US Federal Reserve has been steadily hiking its policy rates, taking no action would allow the spread between domestic and international rates to widen, placing pressure on the domestic currency. We have tried to mitigate this while also ensuring access to credit at reasonable rates by skipping two of the last three rate hikes by the US Federal Reserve in 2017.

How are cryptocurrencies being used, and in what ways are they impacting banks?

AL HASHEL: So far, cryptocurrencies like Bitcoin have only emerged in the private domain. Moreover, their use remains limited and their values are volatile. At present, these currencies have little impact on the conduct of monetary policy or even on financial stability. However, the situation will be different if central banks themselves start issuing cryptocurrencies. Some central banks in advanced economies – like the European Central Bank and the Bank of Canada – have explored the potential of issuing cryptocurrencies, but nothing concrete has been done. If central banks decide to issue cryptocurrencies, it would surely change monetary policies and their targets. For instance, new definitions of monetary aggregates would be adopted.

What are some of the contributing factors to the recent decrease in inflation?

AL HASHEL: In 2017 inflation slowed significantly, averaging 1.5% during the year. The two primary causes of the lower rate of inflation were weaker food and housing prices. Slower growth in the real estate market – which was partly caused by a greater supply of investment buildings and higher vacancy rates – has dampened rental yields, contributing towards lower inflation alongside lower food prices.

What types of measures can be introduced to help attract foreign direct investment?

AL HASHEL: A number of factors, such as the overall investment climate, the availability of suitable projects and the ease of doing business, are critical to attracting foreign direct investment.

Accordingly, concerned government bodies, including the Kuwait Direct Investment Promotion Authority, have been taking the necessary steps to help Kuwait become a destination of choice in the world for foreign direct investment.

For its part, the Central Bank of Kuwait has played a key role by ensuring monetary and financial stability in the country, thus maintaining a healthy economic environment conducive to foreign investment.