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Tue 4 May 2010 02:54 PM

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Bahrain economy may grow 4% in 2010 - cenbank head

Inflation was expected to average at 1.5% this year - central bank governor.

Bahrain economy may grow 4% in 2010 - cenbank head
BAHRAIN WATCH: Maraj also said there would be no further sovereign bond issuance in Bahrain this year. (Getty Images)

Bahrain's economy should grow around 4 percent in 2010, faster than last year, as government stimulus spending outweighs weak investment and consumption, the country's central bank governor said on Tuesday.

Bahrain was unlikely to issue further sovereign bonds this year, Rasheed Al Maraj also told Reuters on the sidelines of a financial conference in the Gulf Arab state.

Bahrain's economy expanded by 3.2 percent in 2009, Maraj said. Bahrain does not release GDP data on a regular basis and had not yet issued a full-year figure for 2009.

In March, Bahrain launched an oversubscribed $1.25 billion, 10-year bond, which came at a time of huge pent-up demand for Gulf sovereign issues.

"No further issues are going to be this year. But we always keep our options open," Maraj said.

Unlike other oil producers in the region, Bahrain has to issue bonds to finance spending.

Gulf Arab countries considerably boosted public spending after the global downturn cut output and froze credit in the world's top oil exporting region last year. Bahrain did the same, although, with dwindling oil reserves, it showed more restraint than its neighbours.

It ran a budget deficit in 2009 for the first time since at least 2005 as average oil prices remained below its estimated budget break-even of about $70 to $80 per barrel .

In a Reuters poll in April, economists forecast economic growth of 3 percent this year.

Maraj also said the kingdom's interest rates would not be cut any further.

"At this level, I think we have reached a very historic low. We don't see any room for any further cuts," he said. "For the moment, the way we see things, interest rates will stay at this level."

Like most other Gulf Arab states, Bahrain, a small oil producer but not an OPEC member, does not have a fully independent monetary policy as its currency is pegged to the US. dollar.

The bank's repo rate, which it uses to inject liquidity into the system via purchases of deposit certificates or government bonds, has stood at 2.25 percent since September 2009.

Gulf neighbour Qatar has a much higher benchmark rate, which has attracted a flood of liquidity into its banking sector.

Inflation should average 1.5 percent this year, Maraj said. (Reuters)