Bahrain, the country with the least oil in the GCC, continues to record the lowest inflation across the region, official figures show.
Annual inflation in Bahrain, also the smallest Gulf economy, averaged four per cent in 2007 up from 2.05 per cent in the previous year, figures from the government’s Central Informatics Organisation (CIO) show.
Qatar had the highest rate with 13 per cent, followed by the UAE with 12 per cent and Oman with 8.29 per cent. Kuwait recorded 7.3 per cent while Saudi’s inflation stood at seven per cent.
According to the IMF, inflation in Bahrain remained subdued at below three per cent from 2005 to 2006, and the unemployment rate declined from 15 per cent in 2005 to four per cent in mid-2007. And financial stability has not been affected by the correction in the GCC equity, it added.
IMF directors have commended the low inflation, which came despite a recent increase due to regional supply bottlenecks and the depreciation of the US dollar. But while inflation in the country is relatively low, near-record levels of money flowing through the Bahraini economy have sparked concerns of a possible inflationary breakout.
The Central Bank of Bahrain recently released its statistical bulletin showing a steep rise in money supply, with an increase of 38.9 per cent in the January to March period, compared to 34.8 per cent in the quarter ending in December. The bank put the first three month’s money supply at $18.73 billion (Dh68.7bn), well up on the $13.46bn as of the end of quarter one in 2007.
The increase was partly driven by a strong rise in the levels of time and savings deposits held by banks, which rose by 48.7 per cent to $11.13bn. The rise in money supply was the highest since 2001, and followed from rises in each month of the second half of last year.
The Oxford Business Group said with the continuous increase of available cash, spending spree could rise, pushing up demand.
Meanwhile, due to the Bahraini dinar’s peg to the US dollar, the central bank has been obliged to follow the lead of the US Federal Reserve in steadily reducing interest rates. The latest cut came on May 1, when the bank lowered its one-week deposit rate from 2.25 per cent to two per cent and its overnight deposit rate to 1.5 per cent from 1.75 per cent.
“However, the CBB left its key lending rates untouched, a move aimed at discouraging borrowing at cheap prices and stopping more money from flowing into the economy,” the report sent to Emirates Business said.