UPDATE 1-Bahrain c.bank sees inflation under control; banks stable

Tue Nov 22, 2011 8:58am GMT

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By Shaheen Pasha and Andrew Hammond

Manama, Nov 22 (Reuters) - Inflation in Bahrain is under control and the kingdom's banking system remains liquid and stable, the Gulf Arab country's central bank governor said on Tuesday.

"Inflation in Bahrain is under control," Rasheed al-Maraj told reporters at an Islamic finance conference in Manama.

"The most important thing in Bahrain is to ensure financial stability," Maraj said. "So far the banking system remains liquid and stable."

The small non-OPEC oil exporter -- a U.S. ally and home of the U.S. Navy's Fifth Fleet -- was hit by unrest earlier this year by demonstrations mainly by majority Shi'ite Muslims demanding political reforms and equality in the Sunni-led state. The turmoil dented economic growth and hit its financial services industry.

In October, inflation climbed to an eight-month high of 0.9 percent year-on-year and prices jumped 1.0 percent on the month as hotel prices rose during the haj pilgrimage season.

The island kingdom drew $1.8 billion in demand for a seven-year Islamic bond, or sukuk, its first sovereign issue since March 2010, pricing it at a yield of 6.273 percent on Wednesday.

"We have no plans for (further sukuk issuance) this year," Maraj also said.

When asked if he was happy with the sukuk pricing, he said: "It's water under the bridge."

A central bank official said this week the issue was part of the country's plan to establish a benchmark yield curve.

Analysts polled by Reuters in September forecast Bahrain's economy to grow by 2.0 percent in 2011 and 3.2 percent in 2012, slower than previously expected due to the unrest.

They also predicted average inflation of 1.8 percent in 2011 and 2.7 percent in 2012, after 2.0 percent last year. (Writing by Martina Fuchs)

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