Economy of Yemen - Currency, Exchange Rate, and Inflation

Currency, Exchange Rate, and Inflation

Yemen’s currency is the Yemeni riyal (YR), which was floated on the open market in July 1996. Periodic intervention by the Central Bank of Yemen has enabled the riyal to gradually depreciate approximately 4 percent per year since 1999. Its valued averaged YR191.5 per US$1 in 2005, and has averaged YR197.5 in 2006. In late November 2006, the exchange rate was about YR198 per US$1.

During the years immediately following unification (1990–96), Yemen experienced a very high average rate of inflation—40 percent. Economic reforms brought this rate down to only 5.4 percent in 1997, but high oil prices and cuts in the fuel subsidy in recent years have had a negative impact on the inflation rate, which has generally been on the rise despite some fluctuations. In 2004 efforts by the Central Bank of Yemen to tighten the money supply were offset by a weakening US$, to which the Yemeni riyal is linked in a managed float, and by rising global commodity prices, resulting in an inflation rate of 12.5 percent. In July 2005, the government succumbed to public opposition and lowered the new general sales tax from 10 to 5 percent. This tax, coupled with reductions in government fuel subsidies and higher import prices, is expected to result in an estimated inflation rate of 15 percent in 2006, up from 11.8 percent in 2005.