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| (flickr.com) Bahrain's domestic public debt declines |
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Continuing their slide, short-term interest rates in the Kingdom fell during the second quarter of the year as well - the three-month and six-month inter bank rates down to 2.8 per cent and 3.3 per cent respectively. These were 2.59 per cent and 2.6 per cent respectively at the end of the first quarter of the year.
Similarly, the three-month treasury bill yield declined to 2.1 per cent, down from 2.8 per cent at the end of the first quarter.
This was revealed in the Kingdom's monetary and financial trends report for the second quarter released yesterday by the Central Bank of Bahrain's Financial Stability Directorate.
With the Kingdom's apex banking authority, Central Bank of Bahrain responding to the series of rate cuts by the US Federal Reserve, the CBB key policy rate was also down to two per cent. It was 2.25 per cent by the end of the first quarter.
Further bringing down the rates, the Kingdom slashed interest rates twice this month to thaw the frozen lending markets. It reduced its repurchase and overnight rates by a massive 125 basis points on Thursday, saying the move reflected current interbank lending rates. Bahrain's interbank rates dropped more than 30 basis points in the past two weeks.
The report said year-on-year inflation rate increased by four per cent at the end of the second quarter.
Inflation numbers released by the Central Informatics Organisation, based on a revised basket of commodities (2006 base year) showed that the consumer price index increased by 1.2 per cent for 2008:Q2.
"Trend analysis of inflation rates becomes easier in the coming months as a longer Consumer Price Index time series develops," the apex bank said in the report.
Corresponding to the reductions in the policy and other short-term rates during the second quarter, the quarterly report said the weighted lending rate for business loans increased to 6.9 per cent during the period (from 6.6 per cent in 2008:Q1). On the other hand, the rate for personal loans decreased to 7.8 per cent from nine per cent in the first quarter of the fiscal.
Average deposit rates (3 to 12 months), which decreased from 3.5 per cent to 1.6 per cent during the first quarter, witnessed a slight increase to 1.8 per cent narrowing the already big spread between deposit and lending rates. "Consequently, Bahraini individual account holders have benefited from the recent reductions in interest rates as their borrowing rates have decreased," the report said.
Total domestic credit increased by 9.8 per cent to BD5077.3 million, down from the 10.4 per cent growth in the previous quarter. The central bank attributed this to the slowdown in the growth of credit to the private sector from 12.5 per cent in the first quarter to 9.8 per cent in the second quarter.
"However, lending to the general Government rose by 9.7 per cent, reversing the steep 19.1 per cent fall recorded during the first quarter."
Year-on-year, total domestic credit expanded by 47 per cent, far exceeding the 16.4 per cent growth rate of nominal GDP for 2007. Private sector credit showed a similar pattern, with year-on-year growth of 49.5 per cent, which is higher than the growth rate of nominal GDP. "This only shows that the lending boom to households and business enterprises is persisting."
An analysis of private sector credit components shows that business loans increased by 3.6 per cent, much slower than the 15.3 per cent in the first quarter. Personal loans grew by 20.9 per cent during the quarter, much faster than the 7.8 per cent growth in the previous quarter.
Loans with 'salary assignment' constituted the bulk of personal loans (44.4 per cent of the total), slightly down from the 46.9 per cent share recorded in the previous quarter. Business loans went primarily to the construction and real estate segment, which accounted for 35.4 per cent of the total.
Continuing the downward spiral, the size of the Kingdom's domestic public debt (securities only) fell by 7.8 per cent during the quarter from BD764.6 million to BD 705.0 million.
The decline in domestic public debt was largely due to a decrease of BD131.6 million in Islamic leasing securities (Ijara sukuk). Outstanding treasury bills on the other hand increased to BD180 million while Al Salam Islamic securities remained unchanged at BD18 million.
During the period, the Bahraini dinar depreciated slightly against the Pound Sterling and appreciated against other key currencies (Euro, Yen, and Swiss Franc). The latest available data for end-2008:Q2 indicates that the Bahrain's Real Effective Exchange Rate (REER) was still trending downwards, suggesting continued improvements in Bahrain's international competitive position.
Source: zawya.com
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