11 April, 2010
Iraq central bank cuts base rates, lowers reserve requirements
Iraq’s central bank slashed its base rate by 100 basis points to 6% as of April 1 in reaction to subdued inflation and to boost bank lending, senior advisors at the bank told Reuters yesterday.
The bank’s website said that the rate cut the first in nine months was effective as of April 3. The bank has also cut banks’ reserve requirements to 20% from 25%, a central bank adviser said.
The rate move reflects the bank’s policy of keeping real interest rates 2 points above core inflation, officials said.
One advisor said the central bank had decided to cut minimum reserve requirements for private banks, which was also aimed at boosting lending to lift the Iraqi economy.
The IMF forecasts economic growth of 7.3% this year, accelerating from estimated 4.2% growth last year but well off 9.5% growth in 2008 when oil prices were at record highs.
The official interest rate in Iraq is more of a guide to bank rates than a direct monetary mechanism as the banking sector is small and capital markets are undeveloped. In addition, the exchange rate is determined by the central bank at regular currency auctions.
“One of the reasons (for the rate cut) is to encourage banks to lend to traders and investors,” advisor Hassan al-Haidari said.
The central bank last cut its interest rate, by 200 basis points, last June to 7%.
Mudher Kasim, also a senior advisor at the central bank, said the bank had lowered minimum reserve requirements for private banks to 20% from 25%. “This will give liquidity to the banks to encourage investment.
Oil exports account for more than 95% of state revenue, and the government is by far the biggest employer, but decades of war and sanctions have left Iraq’s financial system in tatters.
Iraq’s central bank slashed its base rate by 100 basis points to 6% as of April 1 in reaction to subdued inflation and to boost bank lending, senior advisors at the bank told Reuters yesterday.
The bank’s website said that the rate cut the first in nine months was effective as of April 3. The bank has also cut banks’ reserve requirements to 20% from 25%, a central bank adviser said.
The rate move reflects the bank’s policy of keeping real interest rates 2 points above core inflation, officials said.
One advisor said the central bank had decided to cut minimum reserve requirements for private banks, which was also aimed at boosting lending to lift the Iraqi economy.
The IMF forecasts economic growth of 7.3% this year, accelerating from estimated 4.2% growth last year but well off 9.5% growth in 2008 when oil prices were at record highs.
The official interest rate in Iraq is more of a guide to bank rates than a direct monetary mechanism as the banking sector is small and capital markets are undeveloped. In addition, the exchange rate is determined by the central bank at regular currency auctions.
“One of the reasons (for the rate cut) is to encourage banks to lend to traders and investors,” advisor Hassan al-Haidari said.
The central bank last cut its interest rate, by 200 basis points, last June to 7%.
Mudher Kasim, also a senior advisor at the central bank, said the bank had lowered minimum reserve requirements for private banks to 20% from 25%. “This will give liquidity to the banks to encourage investment.
Oil exports account for more than 95% of state revenue, and the government is by far the biggest employer, but decades of war and sanctions have left Iraq’s financial system in tatters.
Gulf Times
*** Iraq central bank cuts policy rate to 6 percent
