* Deposit rate reduced by 300 bps to 15 pct
* Central bank last cut rate in October 2012
* Economy improves, inflation falls to single digits
By Mohammed Ghobari
SANAA, Feb 7 Yemen's central bank slashed its
main interest rate by 3 percentage points to a three-year low on
Thursday following a sharp decline in inflation as it seeks to
consolidate economic recovery in the volatile Arab state.
The poorest country on the Arabian Peninsula and torn by
unrest and clashes with Islamic insurgents linked to al Qaeda,
Yemen has overcome high inflation which fell from a peak of 25
percent in October 2011 to 5.5 percent last November, the latest
Thursday's rate cut was the first since October, when the
central bank began an easing cycle, and should support the
economy, which stabilised last year after shrinking 10.5 percent
in 2011 when political unrest caused fuel and electricity
shortages and there were frequent attacks on oil pipelines.
The International Monetary Fund, which sees the economy
growing 4 percent this year, said last month that Yemen had room
to gradually reduce interest rates to support economic growth.
It warned however that the political transition, following
the overthrow of President Ali Abdullah Saleh last February, and
security concerns, particularly attacks on key oil and
electricity facilities, posed risks to the economic outlook.
In a statement carried by state news agency SABA on
Thursday, the central bank said it cut its deposit rate, the
main rate used to adjust monetary policy, by 3 percentage points
to 15 percent, its lowest since March 2010.
The bank had trimmed the rate, a benchmark for commercial
banks taking deposits from their customers, in October, by 2
percentage points as inflation came down to single digits and
the Yemeni rial stabilised as political turmoil eased.
"The rate reduction comes ... especially with regard to
inflation, which stabilised at 5.8 percent during the last
quarter of 2012 compared to 23 percent in 2011," central bank
Governor Mohammed Bin Humam said in Thursday's statement.
The Yemeni rial tumbled to about 243 to the U.S. dollar in
2011 during a year of unrest which led to the rise of al Qaeda
militants and ultimately toppled President Saleh last year. Some
violence continues, but the currency has now stabilised at
around 215 to the dollar.
Yemen depends on crude oil exports for about 60 percent of
its budget income, and its finances have been shaken by frequent
bombings of oil and gas pipelines by insurgents or tribesmen.
Donor aid, however, increased last year thanks to Saudi
Arabia and the IMF resumed lending to Yemen last April,
approving a $93.7 million loan.