The central bank has notified lenders in the Gulf state that it is reverting back to a previous system whereby it will only buy or sell dollars to them for commercial purposes, not to cover interbank transactions, bankers in Kuwait and Dubai said.
The move could be designed to clamp down on speculators by stopping local banks from using cheap central bank liquidity to enable offshore banks to take positions, a common practice, some bankers said.
"The central bank has informed banks in Kuwait of the change through its channels," said Shahid Mohammad, treasurer at Kuwait’s Gulf Bank.
"I can see some illiquidity in the offshore market, but I think the market will pick up again in a couple of days because the central bank has not put any restrictions on interbank trading," he said. Kuwait central bank officials were not available to comment on the move.
Kuwait dropped the dinar’s peg to the US dollar in May 2007 in favour of a basket of currencies, and the central bank now adjusts the currency’s reference rate versus the dollar every morning at 0800am local time.
The central bank has not disclosed the composition of its basket, saying only it is comprised mainly of dollars. This has allowed currency traders to take positions on the dinar based on how the dollar performed against global currencies a day earlier, traders said. "I’m presuming they want to stop speculation on the dollar-dinar daily fix," said Jason Goff, head of group treasury and market sales at Emirates NBD, the largest Gulf Arab bank by assets.
