KUWAIT CITY: The Central Bank of Kuwait (CBK) on Monday cut its one-week and one-month repurchase rates by 25 basis points each in a bid to expand money supply, a day after reducing the benchmark discount rate.

The bank cut the one-week repo rate to 1.5 percent and its one-month rate to two percent, according to the bank’s official website.

The central bank on Sunday cut its benchmark discount rate by 50 basis points to 2.5 percent, its first reduction in nine months, in a move aimed at making borrowing cheaper. The discount rate cut was the sixth since October 2008 when the government began implementing measures to counteract the global financial crisis.

CBK Gov. Sheikh Salem Abdulaziz Al-Sabah said the latest discount rate cut was aimed at providing “the necessary environment conducive to boosting growth in non-oil sectors of national economy by reducing the cost of lending after indications that inflationary pressures have declined.” Sheikh Salem said that latest data shows that inflation in April dropped for the seventh straight month, to 5.2 percent, after registering a record average of 10.6 percent in 2008.

A cut in interest rates makes borrowing cheaper and is likely to encourage Kuwaiti investment companies, hard-hit by the global economic downturn, to seek fresh loans to refinance their debt.

The repo rate is the rate at which a central bank repurchases government securities from commercial banks. To expand money supply, the repo rate is reduced so banks can swap government securities for cash.

The new moves in Kuwait aim at encouraging banks to loosen their lending policies, which have remained very tight since the outbreak of the global financial crisis.

Head of the Union of Investment Companies Asaad Al-Banwan warned in statements Monday that a number of investment firms will go bankrupt if the tight lending policies continue.

Meanwhile, Kuwait’s $104 billion development plan which Parliament passed last week could boost the Gulf state’s non-oil economy if implemented correctly, Moody’s Investors Service said on Monday. “This plan could potentially boost the country’s non-oil private sector economy and support the construction sector, which has been under pressure in recent years,” said Moody’s in a statement.

“However, the efficient implementation of the development plan remains in question given that the country’s cumbersome bureaucracy has prevented authorities from meeting much lower spending targets,” it added.

Parliament in OPEC’s fourth largest producer overwhelmingly passed the four-year development plan, the first in 25 years, with the aim to boost spending on long-delayed mega infrastructure projects. ¬