Bahrain sees limited impact from rate cuts

Lowering interest rates to cope with the economic crisis would probably have a limited impact and Bahrain sees no need yet to employ any unconventional measures, its central bank governor said yesterday.

Speaking on the sidelines of a forum on Islamic finance in Paris, Rasheed Al Maraj said the oil producer had taken a series of recent steps to cut key rates and reserve requirements as a way of boosting money supply.

"I would not say at this stage that we think cutting further interest rates is going to have any meaningful impact," he said.

Countries around the world had reached a point where cutting interest rates was having more of a psychological effect rather than any real impact on economic conditions, he said.

Asked if Bahrain might consider the use of non-conventional measures to boost its economy, he said the economic situation in Bahrain is "not that desperate" and reiterated that its financial institutions were in sound shape.

"Those countries that have taken sort of extraordinary measures (have done so) reflecting the conditions in their own markets," he said. "For us, we don't see yet anything extra that we have to do in order to stimulate lending," he said, adding this was because many banks were adopting a wait-and-see approach due to heightened uncertainties and the poor global economic outlook.

"We don't think any further cutting could change this," he added.

Bahrain has slashed key interest rates in recent months to help unlock credit markets. Like other Gulf states, Bahrain has been hit by a steep fall in oil prices from their peak near $150 per barrel last summer.

Maraj had said last month that economic growth in Bahrain was set to halve to around three per cent in 2009.