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Mon 25 Feb 2008 04:05 PM

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Inflation to peak in first half of year

Gov't measures will have biggest impact on inflation in H2, Saudi central bank governor says.

Inflation to peak in first half of year
BIGGEST IMPACT: Government measures to reduce inflation will take hold in second half of the year, Al-Sayyari said. (Getty Images)

Inflation in Saudi Arabia, which hit an at least 27-year high in January, will remain high in first six months of the year before falling in the second half, the country's central bank governor said on Monday.

"Inflation will decline in the second half of this year after it peaks in the first half," Hamad Al-Sayyari told newswire Reuters.

"We are hoping recent government measures will have the greatest effect on inflation in the second half which will contribute to stabilising inflation keeping it close to its levels in 2007."

Inflation in Saudi Arabia hit 7% in January on higher rent and food costs. The central bank has raised reserve requirements twice in two months to force lenders to keep more money in their vaults in a bid to slow down credit growth.

Al-Sayyari also told Al Arabiya television that floating Saudi Arabia's currency, which former US Federal Reserve chairman Alan Greenspan said earlier on Monday could ease inflation, was not appropriate for an economy that relies heavily on oil exports.

Free-floating Gulf currencies would ease inflation in the world's largest oil exporting region "significantly" in the short-term, Greenspan said at an investment conference in Jeddah.

There would be no immediate change in the kingdom's monetary policy, Al-Sayyari said, speaking after Greenspan's remarks. He did not give further details.

Al-Sayyari also told Al Arabiya the kingdom had no plans to set up a sovereign wealth fund, backtracking on comments from the country's central bank last month.

Central bank Vice Governor Muhammed Al Jasser said last month Saudi Arabia was considering setting up a $6 billion sovereign wealth fund to invest the country's surplus oil wealth.

He said at the time the country could "live without it" if there is endless debate about suspected abuses. (Reuters)

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