The economists, reported by Riyadh paper, say fueling of inflation came primarily from the fiscal policy and, to a lesser degree, from the monetary policy in addition to cumulative effect of the low exchange rate of the Saudi riyal as a direct result of the depreciation of the dollar.

Inflation in the Kingdom rose by 5.4 percent in February compared to the same period of 2011, its highest level since December 2010.

Saudi Arabian Monetary Agency (SAMA) has recently decided to keep key interest rates unchanged in March with strict control on inflationary pressures, and announced the Saudi banks would hold the reverse repo rate at 0.25 percent, and buy-back interest rate at 2 percent.

Commenting on this, economic adviser Fadl Buainain said the SAMA step was expected, as tools of maneuverability remained limited in light of the US Federal Reserve Board's decision to fix rates of interest on the dollar.

He said interest rates on the riyal would remain compatible with interest rates of the dollar for monetary pegging. He said any attempt to control inflation will not be through interest rates, but by raising the volume of bank deposits at SAMA or the issuance of sukuk (Islamic bonds) that will, hopefully, help a lot in reducing the size of liquidity.

The economic expert said Saudi economy has not reacted rationally with interest variables and even high interest rates did not minimize demand on credits.

Curbing of inflation has to be implemented through control of fiscal policy, reduction of government spending where it has been proved both theoretically and practically that the fiscal and monetary policies have a negative and positive impact on the level of domestic inflation rates, he said.

Economic adviser Ali Al-Thawani stressed that government spending represents one of key challenges of monetary policy in the current year and stands as fuel for inflation.

He believes that one of the most important challenges for the Saudi economy is the ability of monetary policy in keeping balance between big government spending and maintaining inflation rates low in the local market.

The riyal-dollar pegging represents another challenge to the monetary policy of the Kingdom where major fluctuations in currency rates are reflected on decisions related to the budget in terms of deficit or surplus.

Fluctuations in currency rates remain a concern for decision-makers of fiscal policies as they are reflected on prices of imports, he pointed out. He called for an encouraging exchange rate for food imports to drive down prices of food products in the footsteps of other countries of the world.