It is thanks to the fiscal discipline already established that countercyclical policy could be implemented in this period. Tax arrangements along with hikes in commodity prices that were put into effect at the beginning of the year played a significant role in the increase of inflation in the recent period. The hike in annual inflation mainly emanated from the co-emergence of many temporary factors rather than general pricing behavior. Meanwhile, the main inflation indicators remained consistent with medium-term targets. Moreover, the annual rate of increase in services prices and the inflation diffusion index saw historically low levels. These observations indicate that the increase in inflation in the last quarter of 2009 is mainly due to temporary developments, and to factors beyond the immediate control of monetary policy, rather than the main components of inflation. We consider the possible effect of inflation hikes on expectations due to the base effect a significant risk factor in forthcoming months. However, under the assumption that resource utilization in the economy will remain at low levels for an extended period, employment and credit conditions will not allow a strong expansion in consumption demand and fiscal policy will gradually generate a contractionary effect, we believe that the effect of price increases emanating from one-time shocks on general pricing behavior will be limited. It is important that economic units accurately perceive the temporary quality of the said factors and that medium and long term expectations do not deteriorate. The CBT are vigilant on pricing behavior as inflation follows a high course, albeit temporary.

The above indicators unveil the Central Bank of Kuwait’s prudent policy and proactive approach that helped banks to weather one of the most difficult economic crises from a position of strength, and continue providing their services efficiently. Having considered the positive results and resilience of the banking sector, the Central Bank of Kuwait decided to lift restrictions and lay down a map to redirect its regulatory mitigants to prepandemic thresholds. Notwithstanding the banking sector’s sound indicators, high liquidity ratio and strong solvency, the estimated liquidity and solvency ratios above the minimum regulatory thresholds, and outlook of healthy growth, the Central Bank of Kuwait decided to gradually unwind the regulatory mitigants in line with the IMF recommendations. The first phase of our 2-phased transition began early 2022 by withdrawing 50% of the regulatory mitigants. The second phase of withdrawal process shall be completed early 2023 to return to the previous pre-crisis regulatory thresholds. Meanwhile, we shall still support small and medium enterprises by maintaining the same risk weight, and closely monitor the performance of the banking sector and conduct stress testing on its various units. Though the Central Bank of Kuwait is satisfied of the resilience of the banking and financial sector in the State of Kuwait, the developments recently seen in the world and the evolving risks surrounding the prospects of the global economy drive our efforts to protect our economy and banking and financial sectors from external shocks through proper monetary policies and supervisory measures.