KUWAIT CITY, Sept 28, (Agencies): Inflationary pressures in Gulf Arab countries have decreased significantly, but they must pay attention to rising global food prices, Kuwait’s central bank governor said on Tuesday.
Kuwait’s own inflation rose to a 13-month high of 4.0 percent year-on-year in July, according to data released on Tuesday, though it is expected to decelerate towards the end of the year.
Inflation in the world’s top oil-exporting region started to pick up again this year but pressures remain low in most countries and analysts expect consumer price growth to stay well below the record, double-digit peaks of 2008 in coming months.
“Inflationary pressures have receded markedly in Gulf Cooperation Council countries,” Sheikh Salem Abdul-Aziz al-Sabah said in opening remarks at the Gulf central bankers meeting in Kuwait.
“However, this doesn’t mean they have completely disappeared. At this stage it is necessary to pay attention especially to signs of a rise in food prices internationally,” he said.

Price pressures are highest in Saudi Arabia, where inflation hit an 18-month high of 6.1 percent in August, mainly because of surging food costs and chronic housing shortages in the world’s biggest crude exporter and the top Arab economy.
The Saudi central bank indicated this week that though the price rise is worrying, there is not much it can do at this point to tame it as the increase is driven by factors it cannot directly influence.
The desert kingdom pegs its currency to the US dollar in line with most other Gulf crude producers, which makes it keep its policy rates close to US benchmarks.
Oman’s inflation, pressured this year by rising food and housing costs, eased slightly to 3.3 percent year-on-year in July after hitting a 13-month high the previous month.

Growth
Price growth is low in the United Arab Emirates as the second largest Arab economy grapples with the impact of Dubai’s debt woes, while booming Qatar has not yet emerged from deflation. Bahrain’s inflation is stuck in low single digits.
Analysts polled by Reuters in June expected inflation rates in the Gulf to range from 1.7 percent for Qatar to 4.7 percent for Saudi Arabia this year.
Sheikh Salem said he expects Kuwait’s inflation rate to come in at between 4.0 and 4.5 percent in 2010, from the four percent recorded last year and 10.6 percent in 2008.
Speaking to reporters afterwards, he said GCC central bank chiefs reviewed measures and cooperation among their countries in combating money laundering and terrorism funding.

Mohammed al-Mazroui, the GCC’s assistant secretary general for economic affairs, said the meeting also reviewed developments on the planned Gulf common currency from which the United Arab Emirates and Oman have pulled out.
The remaining four states — Bahrain, Kuwait, Qatar and Saudi Arabia — have signed the monetary council pact and set up the monetary council in the Saudi capital Riyadh.
The United Arab Emirates withdrew from the pact over a dispute on where the future central bank should be located, while Oman said it cannot meet the monetary conditions.
Sheikh Salem said efforts were still being made to convince the Emirates to join the monetary council, adding however that “it’s their decision.”

Central bank governors of the four states that have signed up to the union decided in May to study the impact of the eurozone crisis on their plan for a common currency.
At their summit in Kuwait in December, the four GCC members officially launched the monetary union and later set up a monetary council, a precursor for a future GCC central bank.
Sheikh Salem added in his opening address at the 51st meeting of the governors of the GCC monetary institutions and central banks that the set of monetary and regulatory policies adopted by the concerned bodies provided suitable atmosphere for fostering economic performance in the GCC states.
He also made clear that the moves made by the GCC central banks and monetary institutions came within the framework of a general policy aiming at protecting the monetary stability on one hand, and operating as part of systems, as well, as the control and supervisory measures that target the consolidation of the economic performance of the GCC states.

The CBK governor also noted that the inflationary pressures have remarkably receded in the GCC states, though this does not mean that they have vanished altogether.
He also asserted that attention should be paid in the current stage for the signals of a global hike in foodstuffs prices, making clear that the retreat of the inflationary pressures enabled the monetary institutions and central banks in the GCC states to adopt monetary policies and regulatory measures aiming at sorting out the slowing of economic growth rates.
Sheikh Salem added that the financial and economic crisis created a new banking and financial reality that requires further efforts for developing regulatory and supervisory frameworks to keep up with the times, asserting that the coming stage requires the intensifying efforts toward financial leverage of the effective units and institutions in the financial system.

Goal
Further, he pointed out that the above-mentioned goal can be achieved through adopting international criteria and making use of them in developing the integrated regulatory system for the activities of the influential parties of the financial system according to well-planned regulatory rules and systems.
The CBK governor also said that the Basel III agreement that has been recently declared by the Basel Committee on Banking Supervision (BCBS) will contribute to consolidating the financial stability in the long run, particularly as it was declared by the representatives of central banks and financial regulatory bodies who agreed upon a massive reform plan of the banking system.
This reform plan adopts new banking criteria with the aim of strengthening the resilience of the banking sector in the face of any potential crisis, he explained.

In the meantime, the CBK governor stressed the importance of this agreement in featuring the role of banking regulatory bodies with all its kinds whether the preventive or the corrective one as well as the control of performance in terms of providing suitable environment for protecting the status and safety of the financial position of various banking institutions in what leads to a banking apparatus capable of contributing to economic development.
The CBK governor also pointed to the role of the governors committee in bolstering cooperation between the GCC states regulatory authorities and adopting new concepts and measures for banking control, and consequently reaching the desired goal of consolidating the bases of monetary and financial stability in the GCC states.

On the efforts made parallel to the field of monetary and control policies, the CBK governor stressed the necessity of developing statistical systems in the GCC states as part of a perspective that is wider, longer and more relevant to the holistic economic variables in what requires a greater coordination among the central statistical systems in the GCC states.
Finally, the CBK governor hailed the efforts made by the secretariat general and various technical committees and working teams, asserting their roles in pushing forward the engine of joint action toward achieving the required economic integration among the GCC states.
He concluded his address by saying that, “our current meeting will enrich our discussions with various opinions and inferences that we all need in our march toward our joint economic interest.”
Meanwhile, Kuwait inflation rose to a 13-month high of 4.0 percent year-on-year in July, driven by rises in food and global commodities prices.

Decelerate
Inflation in the world’s fourth largest oil exporter is expected to decelerate again towards the end of the year as economies in the Gulf Arab region start to recover from the global financial downturn.
On the month, consumer prices in the OPEC member picked up 0.6 percent following a 0.5 percent rise the previous month, state news agency KUNA reported, citing figures from the Central Statistical Office.
Food prices, which account for 18 percent of the basket, jumped by 3.1 percent in July, following a 0.1 percent rise in the previous month.
“What drives food inflation is what happens to global commodities prices,” said Daniel Kaye, senior economist at the National Bank of Kuwait.
“The central bank will see this as something a little bit beyond its control,” he said.
Housing prices, which have the largest weight of 27 percent in the overall basket, dropped 0.1 percent month on month after rising by 1.3 percent in June.
Transport price growth, the third biggest component, remained flat at 0.4 percent month-on-month.
Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah said on Tuesday that inflation pressures in the Gulf Arab oil producing region had decreased significantly.

“If commodities prices stay more or less where they are now I suspect that food price inflation is probably close to its top. Hopefully towards the end of the year this will start to ease back again,” Kaye said.
“Inflation will be a little bit lower from where it is now, edging down towards the 3 percent mark as the impact of this food inflation begins to decline a little bit,” he added.
In fellow OPEC member Qatar, the world’s largest liquefied natural gas exporter, consumer prices fell 0.5 percent month-on-month in July, mainly due to a drop in housing costs, putting the country’s annual deflation at 2.9 percent.
A Reuters poll forecast inflation in the world’s fourth largest oil exporter at 4.0 percent for the full year of 2010, the same as last year.