UPDATE 2-Kuwait cuts key rate from Monday to stimulate economy

* Kuwait central bank cuts discount rate to 3.5 pct

* Move will reduce financing costs, stimulate economy

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By Rania El Gamal

KUWAIT, April 12 (Reuters) - Kuwait's central bank has decided to cut its benchmark discount rate by 25 basis points to 3.5 percent effective Monday to reduce the cost of funding and stimulate the local economy, the state news agency reported.

The reduction would take the total benchmark rate cut by the world's seventh-largest oil exporter to 225 basis points since October, when the government was forced to rescue Gulf Bank (GBKK.KW: Quote, Profile, Research) after it recorded steep derivatives losses.

"The decision to cut the discount rate at the central bank of Kuwait contributes another dose to push the wheel of local economic activity through cutting the cost of finance," Sheikh Salem Abdul-Aziz al-Sabah said, according to KUNA.

Sheikh Salem said last month he expected the economy to contract this year as oil prices slump and economic activity is hit. [ID:nLO963520]

KUNA did not say whether the central bank had also decided to cut its repurchase rates. Kuwait last reduced its discount rate by 50 basis points to 3.75 percent in December.