Monetary Policy Eases Inflation: The Kuwaiti Government Has Been Struggling to Control Rising Prices for the Past Year, but the Global Downturn and a Series of Fiscal Measures Are Finally Having an Impact

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At a time when the global financial crisis is grabbing the headlines, it is easy to forget that in some countries, other economic issues are dominating the thoughts of local policy makers. Like its GCC neighbours, Kuwait has been affected by the downturn in markets, and has also had to intervene to alleviate its impact on the Kuwait Stock Exchange (KSE).

But throughout the tumult of recent weeks, the government has maintained that its focus remains on monetary policy and, specifically, bringing inflation under control.

"The Central Bank of Kuwait's board of directors ... re-emphasises the banks's keenness on taking the preventive and precautionary measures ... that contribute to sustaining monetary stability, curbing inflationary pressures and strengthening the soundness of the domestic banking sector," the central bank said in a statement to the press on 22 September.

Rising inflation

Inflation has been the key issue for Kuwait's economy since the beginning of the year. In January, year-on-year inflation reached 9.5 per cent, and by February it was in double digits. It hit a high of 11.4 per cent in April and, according to the latest data published by the central bank, reached close to that peak again in June, at 11.35 per cent. "When you get double-digit inflation, you know it is something consumers and households will feel," says Randa Azar-Khoury, group chief economist at the National Bank of Kuwait (NBK).

Thanks to Kuwait's abundant hydrocarbon resources--the government earned KD17.7bn ($66.3bn) in oil revenues in 2007--it is a wealthy nation.

According to the International Monetary Fund (IMF), Kuwait's estimated gross domestic product (GDP) per capita of $46,397 in 2008 puts it in the top 20 worldwide. In the GCC, it hafts only Qatar and the UAE, and it compares favourably with Bahrain, Oman and Saudi Arabia, all of which have estimated per capita GDP of $20,000-25,000.

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The impact of an expected global recession on oil demand has pushed prices down dramatically in recent weeks, from …