Interest rates in Yemen nearly doubled to stabilise the rial

Yemen’s central bank, operating in territory controlled by its exiled government, nearly doubled its interest rate yesterday in an effort to stabilise the rial after violent demonstrations against a plunging currency.

State news agency Saba said the rate on certificates of deposit had been increased to 27 per cent. An official at the bank said the rate had been 15 per cent for the past four years.

Yemen’s currency has halved in value against the US dollar since the start of a civil war in 2014, when the capital was captured by the Iran-aligned Houthi movement and the government fled.

Most Yemenis now live in Houthi-controlled territory, while the internationally recognised government of exiled President Abdradu Mansur Hadi controls the south, backed by a Saudi-led coalition of Arab troops.

Saba said the central bank also raised the interest rate on government bonds to 17 per cent. It did not say what the previous rate was.

The effect of the rate decision is hard to forecast in the Arabian Peninsula’s poorest country, where inflation has hit record highs and many traders prefer the Saudi riyal.

The plunge in the currency and soaring inflation sparked demonstrations in the government-held south this month.

The banking system functions, delivering some government salaries, and is used for transfers of funds from Yemenis living abroad.

Yesterday’s statement said the bank will tighten foreign exchange rules and Yemenis will not be allowed to take more than $10,000 (Dh36,731) out of the country without approval from the central bank.

Last year, the government floated the rial, telling banks to use the market rate for the rial instead of a fixed rate.

Yesterday, the currency was changing hands at around 610 rials to the dollar on the black market in the southern port of Aden, base of President Hadi’s exiled government, while the official rate was announced at 490 rials, according to traders.