Money supply developments in Kuwait are not reflecting the recent rise in inflation; broad money (M2) growth was running at just 1% in January 2011. However, M2 growth subsequently surged in February to a one-year high of 5.2%. The data from the Central Bank of Kuwait show that this was largely due to an increase in the net foreign assets of the Central Bank, most likely owing to higher oil prices. The large fiscal handouts announced by the emir in February are likely to have also contributed. Interestingly, lending to the private sector remained in the doldrums. Higher state transfers and benefits for citizens are boosting the money supply, but it seems likely that much of the money will go into consumption (of imports) rather than into investment goods.

Kuwaiti interest rates generally track those set by the Federal Reserve (the US central bank), as the US dollar makes up the bulk of the undisclosed, trade-weighted basket of currencies to which the Kuwaiti dinar is pegged. Kuwaiti rates are expected to stay largely unchanged until the Federal Reserve starts to tighten policy, expected in 2012, as inflationary pressures remain under control.