Manama, Bahrain - The Central Bank of Bahrain (CBB) said on Thursday that it would cut its key policy interest rate by 25 basis points, after reviewing the decision taken by the US Federal Open Market Committee a day earlier.

"Effective immediately, the CBB's rate on the one-week deposit facility is 1.50 per cent, down from 1.75 per cent previously," a statement by the CBB said.

According to the statement, the CBB's lending standing facilities remain available for its banks at their initiative to assist them to meet their liquidity needs. The Bahraini dinar is pegged to the dollar.

"The CBB has decided to adjust the rate on the overnight deposit facility to 1 per cent from 1.25 per cent previously. It has also decided to adjust the repo lending rate, through which it charges banks for the use of these facilities," the statement said.

To reflect changes in current interbank market interest rates, the CBB has reduced the repo and lending rates to 3.50 per cent from 4.75 per cent previously.

The adjustment to the deposit and lending rates is part of a package of measures that the CBB had announced this week to ensure the smooth and effective functioning of the money markets in Bahrain.

The CBB is providing retail banks a daily FX-swap facility that allows banks to obtain Bahraini dinars in return for dollars at banks' initiative.

In addition, as well as being able to lend overnight funds against its usual eligible collateral (Bahraini dinar deposits at the CBB and Government of Bahrain T-bills) the CBB can now also accept Government of Bahrain short and long term Ijara sukuk as collateral without a discount.

This includes outstanding Government of Bahrain long term Ijara sukuk denominated in US Dollars.

"The CBB will continue to examine the scope further to widen its collateral framework," the statement said.

"The Central Bank of Bahrain (CBB) continues to monitor global and local market developments closely and will consider additional measures to ensure the normal functioning of Bahraini markets should the circumstances require," the statement added. (dpa)