To protect the currency peg, the Central Bank needs to keep its key policy rate, the one-week deposit rate, roughly in line with US rates. As a result, and given concerns about a slowdown in local bank lending, the policy rate is likely to remain low until the Federal Reserve (the US central bank) raises its rates, which we believe is likely in 2012. The Central Bank will try to keep rates low in 2011 to help to stimulate the economy and has pledged to provide liquidity to the retail banking sector should the need arise. Bahrain could start raising rates ahead of the US if it judges that growth is recovering and inflationary pressures are building. However, any such moves would be taken slowly to avoid creating speculative pressure. The Central Bank has announced plans to develop sharia-compliant money-market instruments to provide liquidity to an increasingly important subsector of the finance industry.