MANAMA, 19 October 2006 — Bahrain’s central bank governor has downplayed speculation that inflation was out of control, saying the consumer price index was a stable 2.6 percent as of September.
Central Bank of Bahrain (CBB) Governor Rasheed Mohammed Al-Maraj on Tuesday also affirmed that his country would comply with any possible UN resolution to impose financial sanctions on Iran because of its nuclear program. Bahrain hosts branches for a number of Iranian banks.
Al-Maraj, who was speaking at the Foreign Correspondents’ Club (FCC) in the Manama suburb of Juffair, pointed out that concern for inflation had been focused on because of recent short-term inflation in a number of Gulf countries, who are pushing ahead with plans for a single currency and a unified financial monetary system by 2010.
“I think this will be dealt with,” he said.
Al-Maraj, however, declined to speculate on whether inflation would be a concern come 2010. He also said that his country, being one of the Gulf’s financial centers, would like to submit a bid to host the Gulf Central Bank when it is conceived by 2010.
Al-Maraj said that Bahrain is reviewing how inflation is determined in the island state as part of a routine measure to ensure that they have a proper measuring tool.
“The government is currently reviewing the basket of commodities to measure inflation,” he said. “The bulk of the components of the basket more or less are fixed — as energy and housing for example — and this constitutes a big junk of the family budget.” Al-Maraj added that they remain committed to their present exchange rate policy and that they would not meddle with it at the present.
He would not comment on what steps they would take if the review of the basket revealed that there was inflation or on whether or not they would raise interest rates.
“Our interest rate has been shadowing the US dollar interest rate, we can not do with that because of our (currency) peg with the US dollar,” he said. “If we deviate in a big way from that it would create a lot of arbitraging.” He also said that doing away with the offshore status for some banks and unifying into one system helped to eliminate redundancy and simplified the process for them to take advantage of investment opportunities in Bahrain.
Al-Maraj added that the recent move to attract Islamic insurance companies was a natural development to build on the success of efforts carried out in the past three decades to attract Islamic banks.
“Bahrain exerted a lot of effort to encourage and foster the Islamic financial business to help it grow and flourish especially through developing the codes and regulations that helped those institutions earn credibility by operating from here,” he said. “Today we are in talks with a number of international companies who wish to enter the Islamic insurance sector of the market, but I can not reveal who or how many companies we are talking to because this is something for them to reveal.”
