Inflation 10.5 percent rate may reduce interest rates in Yemen

By: Radhwan Alhamdani Editor into English by: Tawfiq Alnadhif
SANA'A, July =31 (Saba)- The overall average of
inflation in Yemen has fell to 10.5 percent at the end of last May, down =
from 17.69 percent in last January due to fall down of food and =
beverages prices in that period.

The overall average of inflation recorded in November 2008 19.09 percent =
due to the continuous rise in food prices, especially since the =
beginning of 2008 when the inflation
recorded 8.79 percent in January of the same year. In December 2008, the =
inflation felt down from 18.98 percent up to 10.5 percent at the end of =
May 2009. This decline of
inflation rates since the beginning of this year encouraged Yemen =
Central Bank (YCB) to reduce the interest rate twice on the Yemeni Riyal =
savings deposited in banks from
13-12 percent and then to 10.5 percent in last May, although the gap is =
still big between the interest rates on Yemeni Riyal deposits and U.S. =
dollar deposits. It could not
predict whether this decline will push the YCB to reduce interest rates =
for the third time in the coming months if the inflation continued to =
decline until the end of the
current fiscal year. According to the Central Statistics Organization, =
the rate of core inflation was based on an annual basis decline to 1.36 =
percent at the end of May,
downing from 3.94 percent early this year. The annual overall average =
decline of inflation came after the low index of consumer prices from =
145.23 percent at the end of April
to 144.46 percent at the end of May 2009 due to the low index of food =
and beverages by 1.10 percent and the index reduction of tobacco, =
cigarettes and Qat by 0.32 percent,
which reflects the monthly inflation rate by 0.53 percent at the end of =
May2009. Economic experts said that this decline shows that the consumer =
price index of food and drinks
actually reduces the impact of higher prices for other items. The =
Central Statistics Organization data were free of any preliminary data =
indicate that inflation will continue
to decline until the end of 2009, the same pace recorded during the =
first five months of the same year as it depends on different domestic =
and global factors and impacts.
The YCB seeks to encourage commercial banks working the country to =
invest their surpluses by reducing the interest rates to get them in the =
areas of financial assistance,
loans and credit facilities for investment projects and organizations of =
commodity production to contribute to increasing the supplies of real =
goods and services and achieving
stability in price levels. It also believes that the reduction in the =
interest rates would contribute to reducing the funding cost of Yemen's =
imports of goods and the costs
of lending in general, in addition to easing the burden on the public =
budget of the state of the benefits granted to the Treasury bills used =
in the funding. Despite some
differences in the assessment of the economic reforms results that were =
begun by government several years ago, these reforms have produced =
affirmative results at the level
of curbing inflation, stabilizing the exchange rate of the Yemeni =
currency against other currencies and reducing the budget deficit to the =
lowest levels.

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