Loading ...Governor of Central Bank of Kuwait calls for stemming inflation |
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KUWAIT, May 7 (KUNA) -- The Governor of the Central Bank of Kuwait called on Wednesday for coordinated and joint efforts by the various national authorities to stem the current snowballing inflation that has affected the national economy.
In an exclusive interview with Kuwait News Agency (KUNA), Sheikh Salem Abdel Aziz Al-Sabah said the continous rise of the prices of commodities, products and various services on the domestic market, "which constitutes a national challange was the result of many local and external factors." Surplus pressure results in cutdown in the monetary purchase power and this renders the combat of the surplus pressure a prime objective of the monetary policy of the central bank in the medium and long terms, in addition to the emphasis of the "role played by the general economic policies in this regard." He confirmed, citing figures by the the central statistics department of the ministry of finance, the rise of prices of the basics in the local market.
Basic consumer prices soared in January by 9.5 percent compared to 3.9 percent of the same month of last year.
The central bank, he added, was aware, at an early stage, of the necessity to take action by using tools of te monetary policy to stem the mounting surplus pressure, first tangibly sensed in 2005, when the inflation reached 4.1 percent from 1.1 percent between 2000 and 2004.
Later, the inflation rate dropped from 4.1 percent to 3.1 percent in 2006, but resumed rising to reach 5.5 percent in 2007 and 9.5 percent in January 2008
Sheikh Salem said CBK at the same time realized that there were certain issues that were difficult to counter, explaining that the great increase in the prices of basic commodities, unlike the price of energy, was subject to external factors that pushed national inflation rates up.
The hike in the price of commodities is almost a global phenomenon that has affected the economies of the developed and emerging countries, but in different ways and to varying degrees, he said.
To cite an example, Sheikh Salem said that the hike in prices at the global level in January 2008, compared to the same month last year, rose 16.1 percent for housing, 10.3 percent for commodities and household services, and 7.6 percent for foodstuff.
He added that the general increase of prices in Kuwait indicated that the inflation was linked to two aspects: the first related to external developments, while the second is dependent on local developments each contributed to the hike in prices in the country.
External developments that led to local inflation rise include the hike in the global prices of food products, which is the result of the increase in oil prices and the subsequent up in the costs of transportation and shipping.
Also, he said many agricultural products were being used for the production of bio-fuels, not forgetting the drought from which some major agrarian countries suffered.
Sheikh Salem explained that CBK's monetary policy was focused on countering inflation and controlling inflation imposed by developments at the currency exchange level, and thus CBK changed the exchange policy of the Kuwaiti dinar on May 20, 2007, after it exhausted its available margin of flexibility for dinar exchange against the US dollar.
CBK re-pegged the dinar to a balanced basket of major currencies of countries with which Kuwait is engaged in commercial and financial relations with the aim of granting more flexibility to the dinar exchange and to protect it against sharp changes in the prices of major currencies, he said.
As for local aspects that played a role in raising prices, he said the fast population growth - Kuwait's population gained 6.8 percent in 2007 (3.1 percent gain in citizens and 8.6 percent in expatriates), compared to a 5.6 percent compound average growth in population for 2000-2004 (3.2 percent increase for citizens and seven percent for expatriates).
The governor explained that this growth in population pushed inflation up because of the increase in demand on housing, which surpassed supply.
Inflation in modern economies is a multi-dimensional phenomenon that requires boosting the efficiency of monetary policies and increasing the efficiency of counter-inflation measures through adopting general economic policies, he said.
Sheikh Salem said that the success of CBK's efforts in fighting inflation would remain dependent on the support of the state's economic policies and the bank's monetary policies.
He added that monetary policy tools alone could not curb inflation of prices in light of current economic developments, which posed a fundamental challenge -- that of achieving a balance between increasing demands for hiking public spending with the growth in oil revenues on the one hand, and requirements for countering inflation pressures and the subsequent need for reducing public spending.
Moreover, he said that for inflation rates to continue to be relatively high meant that there was a need to activate the general economic and financial policies that would curb growing local demand fueled by the increase in spending.
These policies, he said, would boost monetary stability and national economy.
Sheikh Salem noted the need to adopt measures that supported competition in the local market and provided land for private housing or the economic sector which would help cut the costs of production and services.
By Hanan Al-Qaissi and Ahmad Al-Faraj
© KUNA (Kuwait News Agency) 2008
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