KUWAIT CITY, Dec 24: Kuwaiti banks have shown fear of a huge withdrawals if the Central Bank of Kuwait lowers, in one shot, interest on the Kuwaiti dinar by a half point on linking the exchange rate of dinar with US dollar on January 1, 2003.

Banks in Kuwait fear that a decrease in interest on the dinar, would cause large sums to go abroad due to low return.

Banks had warned the Central Bank of Kuwait that decline in the interest rate linked to dinar would cause a crisis for banks, and may lead to huge withdrawals by clients seeking better investment.

Banks sources said that they are currently trying to convince the Central Bank of Kuwait to postpone lowering the interest rate on the dinar as linking of dinar with dollar requires equivalent interests for both currencies.

However, governor Central Bank of Kuwait Sheikh Salem Abdul Aziz Al Sabah, told the journalists on Monday that Kuwaiti dinar exchange rate would be pegged within the margins to the US dollar and the new parity rates mentioned in the amiri decree 266/2002 would be effective as of Jan 1, 2003.

He said exchange rates fluctuations as of that date would be confined between a set of a minimum and maximum and adoption of new parity rate would be smooth as there would be no surprises or extreme fluctuations in the exchange rate against the dollar.