Bahrain: Cash Flowing Freely |
|
Network this!
While inflation in the kingdom is relatively low, near record levels of money flowing through the Bahraini economy have sparked concerns of a possible inflationary breakout and have prompted moves by the kingdom's central bank to take some of the heat out of the situation.
On May 4, the Central Bank of Bahrain (CBB) released its latest statistical bulletin, covering the first three months of the year. The report showed a steep rise in money supply in the economy, with an increase of 38.9% in the January to March period, compared to 34.8% in the quarter ending in December.
The bank put the total M3 money supply level in the kingdom's economy at $18.73bn, well up on the $13.46bn as of the end of Q1 in 2007. In part, this increase was driven by a strong rise in the levels of time and savings deposits held by banks, which rose by 48.7% to $11.13bn. The increase in money supply was the highest since 2001, and followed on from rises in each month of the second half of last year.
The concern is that, with increasingly high levels of cash available, both private individuals and companies could go on a spending spree, pushing up demand in an economy that is in many sectors struggling to maintain the balance of supply. This in turn would stoke inflationary fires, something the CBB and the government have sought to keep in check.
In March, annual inflation hit 5.24%, low when compared to neighbouring Qatar's 14%, but still up on the 4.82% recorded in February.
Even before its monetary supply report came out, the CBB has been alert in its anti-inflationary platform. Due to the Bahraini dinar's peg to the US dollar, the CBB has been obliged to follow the lead of the US Federal Reserve (Fed) in steadily reducing interest rates. The latest round of cuts came on May 1, when the bank lowered its one-week deposit rate from 2.25% to a flat 2% and its overnight deposit rate to 1.5% from 1.75%, in response to a cut by the Fed.
However, the CBB left its key lending rates untouched, a move aimed at discouraging borrowing at cheap prices and stopping even more money from flowing into the economy. In a previous move to drain off some of the liquidity floating around in the economy, the CBB lifted the bank minimum reserve requirement from 5% to 7% in January.
The day after the CBB released its monetary supply bulletin, the bank's governor, Rasheed Mohammed Al Maraj, said that while Bahrain had been fortunate that inflation had remained at levels below most of its neighbours, continued vigilance was required to keep price rises in check.
"The rising price of oil, while very welcome, has not come without its own challenges. Along with the rest of the world, we, too, are facing inflationary pressures, which need to be carefully managed without compromising the momentum of economic growth," Al Maraj told delegates attending a finance summit in Manama.
However, he also warned that circumstances beyond the control of individual central banks and nations, such as global price rises, food shortages and increasing commodity prices could have an impact on Bahrain, with rising food costs already identified as one of the key drivers in the kingdom's increasing inflation.
Though the government has taken steps to reduce inflationary pressures such as providing foods subsidies for low-income families, supporting efforts to cap price increases in the construction industry and keeping down energy costs, the threat remains that the kingdom's cashed up economy will add to the flames of further inflation.
© Oxford Business Group 2008
Community Comments (0) - 
Comment on this article 
Comment on this article
The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.
Loading ...
Zawya Comment Policy:
-
Zawya encourages you to add a comment to this discussion. You agree that when you add content to this discussion your comments will not:
1.1 Contain any material which is libelous or defamatory of any person, is obscene, offensive, hateful or inflammatory or causes damage to the reputation of any person or organisation.
1.2 Promote sexually explicit material, violence, discrimination based on race, sex, religion, nationality, disability, sexual orientation or age or any illegal activity.
1.3 Be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence.
1.4 Be threatening, abuse or invade another's privacy, or cause annoyance, inconvenience or needless anxiety.
1.5 Be used to impersonate any person, to misrepresent your identity or affiliation with any person, or be likely to deceive any person.
1.6 Give the impression that they represent Zawya.
1.7 Advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse. - The content posted on www.zawya.com is created by members of the public. The views expressed are theirs and unless specifically stated are not those of Zawya. Zawya reserves the right to review all comments prior to posting and edit or delete any contribution, but Zawya is not responsible for and can not be held liable for any content posted by members of the public on www.zawya.com.
- Zawya is not responsible for the availability or content of any third party sites that are accessible through www.zawya.com. Any links to third party websites from www.zawya.com do not amount to any endorsement of that site by Zawya and any use of that site by you is at your own risk.
- By submitting your comment, you hereby give Zawya the right, but not the obligation, to post, air, edit, exhibit, telecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comments worldwide, in perpetuity.
Post Your Tender Notices for FREE
(No Sign-in Required)
Zawya Tenders is a Tender Notices service entirely driven by contribution
from issuers in both public and private sectors. It is not an e-tendering service and is entirely FREE.
As an Issuer, you can benefit from posting an unlimited number of Tender
Notices for FREE and reaching out to an online community of bidders.
The service also offers you a tool to track the interest of bidders to your
tenders 'live' online.
from issuers in both public and private sectors. It is not an e-tendering service and is entirely FREE.
As an Issuer, you can benefit from posting an unlimited number of Tender
Notices for FREE and reaching out to an online community of bidders.
The service also offers you a tool to track the interest of bidders to your
tenders 'live' online.
| Tender Notice | Due Date |
Community Buzz
Stories
Companies
Most viewed companies by Community in the last 24 hrs
| Company Name | Country | Industry |
| Consolidated Contractors Company | Overseas | Construction and Design |
| Saudi Binladin Group | Saudi Arabia | Construction and Design |
| Saudi Telecom | Saudi Arabia | Telecommunications Services |
| Saudi Electricity Company | Saudi Arabia | Electric Utilities |
| Emirates Aluminium Company | UAE | Metal Production |
| Sharjah Electricity and Water Authority | UAE | Electric Utilities |
| Emirates Telecommunications Corporation | UAE | Telecommunications Services |
| Al Azizia Panda United Company | Saudi Arabia | General Retailers |
| Commercial International Bank (Egypt) | Egypt | Banking |
| Dodsal Engineering and Construction | UAE | Construction and Design |
Projects
Most viewed projects by Community in the last 24 hrs
| Project Name | Country | Sector |
| Takreer - Ruwais Refinery Expansion | UAE | Oil and Gas |
| Al Futtaim Carillion - Marina Hotel (Yas Island) | UAE | Real Estate |
| Emirates Aluminium (EMAL) - Smelter Complex - Phase 1 | UAE | Industry |
| Abu Dhabi DOT - Abu Dhabi Metro | UAE | Infrastructure |
| ENEC - Nuclear Power Plant | UAE | Power and Water |
| SATORP - Jubail Refinery and Petrochemical Complex | Saudi Arabia | Oil and Gas |
| Dubai RTA - Dubai Metro | UAE | Infrastructure |
| Al Safwa - Jeddah Cement Plant | Saudi Arabia | Industry |
| Qatar Bahrain Causeway Foundation - Qatar Bahrain Causeway | Bahrain | Infrastructure |
| Qatar Bahrain Causeway Foundation - Qatar Bahrain Causeway | Qatar | Infrastructure |