Kuwait Central Bank Governor Sheikh Salem Abdul-Aziz Al-Sabah, said the bank “will continue its intensive efforts by employing all monetary policy tools and prudential measures at its disposal to deal with this challenge.”
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 … imported inflation,” Sheikh Salem said in a written interview late on Wednesday.
He gave no details on what further measures the central bank might undertake to tackle inflation, but said monetary policy alone was not enough to tackle inflation that is being driven by housing costs and high global commodity prices.
“Fiscal policy can play a significant role in reducing inflationary pressures,” he said.
Housing costs surged 16.1 percent in February while food costs rose 9.22 percent. Finance Minister Mustapha Al-Shamali told reporters yesterday annual March inflation would be “around 10 percent.”
“The government can limit the growth of public spending, especially the current outlays, which feeds excessive domestic demand,” Sheikh Salem said. “All concerned parties in the government, the national assembly and the private sector should act collectively to bring down inflation.”
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, forcing the cabinet to increase expenditures to KD18.9bn ($ 71.18bn) for the fiscal year 2008/09.
Kuwait’s government unveiled a proposal this month to cut import duties on food and increase subsidies to offset inflation.
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,” Sheikh Salem 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, confirming press reports it had imposed new rules for risk weightings for loans
