Doha: Qatar's decision to cut the interest it offers on overnight deposits, its first decrease in two years, was prompted by deflation in the country and low borrowing costs worldwide, the central bank said.
"A reduction in the interest rate in Qatar is consistent with the international and regional situation," the bank said in an emailed statement today.
The overnight deposit rate was cut by 50 basis points, or 0.5 percentage point, to 1.5 percent on August 11. The benchmark was last cut in May 2008 when Qatar trimmed it 25 basis points to 2 per cent. The overnight lending rate, the key measure used by the central bank to convey signals to the market, was held at 5.5 per cent.
Consumer prices in Qatar have continued to decline for the past six months after deflation reached 4.9 per cent in 2009. Prices declined 2.8 per cent in June, following a drop of 3.6 per cent in May. Qatar, which had inflation of as high as 15 per cent in 2008, predicts prices will rise 1 per cent this year.
The day before Qatar's rate move, the US Federal Reserve left its overnight interbank lending rate target in a range of zero to 0.25 percent and repeated a pledge to keep rates low "for an extended period." In common with most Gulf states that link their currencies to the dollar.
