br>SANA’A, May 13 (Saba)- Liquidity growth fell back to around 10.1 per cent year-on-year (y/y) in January from 12.8 per cent y/y at the end of 2009, according to new figures from Yemen's Central Bank.

‘’Narrow money supply growth slipped to just 4.2 per cent y/y at the end of January, from 11.5 per cent y/y during the previous month. Seasonal factors are likely to have played a role in the pullback, with demand deposits plunging 9.8 per cent y/y to just 202.5 billion rials (US$899 million)’’, the CBY said.

‘’At the end of January narrow money supply stood at 715 billion rials. Quasi-money, on the other hand, grew to 1,326.5 billion rials, an increase of 5.6 per cent over the previous year, as foreign currency deposits surged 28.2% y/y. Pressure on the rial has yielded a rapid increase in foreign currency deposits and deceleration in rial-denominated deposit growth’’.

At the end of January foreign currency deposits made up 51 per cent of all deposits.

As global commodity prices continue their rebound over the coming months, inflationary pressures in Yemen are set to increase, and the central bank is likely to renew efforts to stem the fall of the rial against the U.S. dollar via active currency intervention.

While there is some likelihood that authorities will gradually begin to allow a stronger depreciation in the medium term to boost domestic competitiveness in the non-oil sector and rein in costly imports, authorities look set to maintain the rial's stable exchange rate in the near term in the hopes of joining the Gulf Cooperation Council (GCC) by 2016.

The central bank’s goal of currency stability will need to be bolstered by its desire to reverse the recent rise of dollarisation in the country, a trend that is expected to continue in the near term, as confidence in the banking sector and overall economy remains low.

Saba