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Sun 6 Jan 2008 03:02 PM

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Kuwait taking action to curb inflation

Currency basket against which Gulf Arab state tracks dinar will 'play a role', finance minister says.

Finance minister Mustapha Al-Shamali said on Sunday Kuwait was implementing measures to curb inflation which hit a record 6.2% in September.

He gave no details of the measures but said the currency basket against which Kuwait tracks the dinar would "play a role".

Kuwait broke ranks with its Gulf Arab neighbours last May by dropping its currency's peg to the US dollar, saying weakness in the greenback was fuelling inflation by making some imports more expensive.

The Gulf Arab state pays for a third of its imports in euros.

"We are currently working on reducing the inflation. There are several measures. There are many options," Al-Shamali told reporters on the sidelines of a banking conference.

When asked if price rises would ease this year, Al-Shamali said: "I hope so."

Kuwait said last month it would improve its food subsidies system and tighten controls to prevent unjustified price increases.

Inflation in the Middle East's fourth-largest oil exporter is expected to fall to 4.3% this year after hitting 4.4% in 2007, according to a poll of 12 economists by newswire Reuters in December.

The dollar pegs force Gulf central banks to track US monetary policy at a time when the Federal Reserve is cutting interest rates to contain the fallout of a mortgage crisis.

The country was "looking cautiously" at credit growth and was concerned about how an acceleration in lending could affect the economy, its central bank governor said earlier on Sunday.

Kuwait has left its benchmark discount rate, which banks use to determine lending rates, unchanged at 6.25% following three US interest rate cuts since September 18. (Reuters)