SANA’A: Yemen’s central bank slashed its main interest rate by 3 percentage points to a three-year low yesterday 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 available data.
Yesterday’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 posed risks to the economic outlook.