Kuwait’s central bank said it will keep pushing ahead with “intensive efforts” to use monetary policy to confront record inflation in the only Gulf Arab oil producer that does not peg its currency to the ailing dollar.
Kuwait Central Bank Governor Sheikh Salem Abdul-Aziz Al-Sabah said he would use “all monetary policy tools” to tackle rising prices, but called on the government to curtail public spending after annual inflation hit 10.14 percent in February.
“The Central Bank of Kuwait will continue its intensive efforts by employing all monetary policy tools and prudential measures at its disposal to deal with this challenge,” Sheikh Salem told Reuters in a statement on Wednesday.
Kuwait broke ranks with Saudi Arabia and four other Gulf Arab oil producers by severing its link to the US dollar in May 2007, partly to fight imported inflation as the greenback weakened on global markets.
It has since allowed its dinar to rise almost 9 percent, while the dollar has lost more than 15 percent of its value against the euro over the same period.
“The decision to repeg the Kuwait dinar to a special basket of currencies has reduced that part of inflationary pressures, called imported inflation,” Sheikh Salem said in response to questions.
The basket has helped in “restraining the sharp increase in the imported inflation component of the consumer price index,” he said, without giving details on what further measures the central bank might undertake to tackle inflation.
Kuwait’s central bank has not revealed the composition of its basket, saying only it is comprised mainly of dollars.
But monetary policy alone is not enough to tackle inflation being driven by housing costs and high global commodity prices, Sheikh Salem said. Housing costs surged 16.1 percent in February while food costs rose 9.22 percent.
The comments came just days before parliament holds a meeting to discuss another pay increase for public sector employees, a move that is likely to meet opposition from the government. Public service wages were last raised in February.
Kuwait’s government unveiled a proposal this month to cut import duties on food and increase subsidies to offset inflation.
“Fiscal policy can play a significant role in reducing inflationary pressures,” Sheikh Salem said.
“The government can limit the growth of public spending, especially the current outlays, which feeds excessive domestic demand,” he said.
The state, which owns more than 90 percent of land, could influence supply by “providing more land to bring down the cost of housing and storage services,” he said.
Kuwait’s central bank, for its part, tightened curbs on consumer lending beginning March 30 to try to rein in inflation.
“These changes…will eventually safeguard the local banking and financial system and curb the considerable growth in the volume of these loans,” Sheikh Salem said.
The central bank is also discouraging banks from excessive credit expansion through new capital adequacy rules, he said. (Reuters)
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