According to Article No. (5) of the Law of the Central Bank of Yemen, the main objective of its monetary policy is to achieve price stability and maintain this stability. Another goal is to enhance liquidity, solvency, and the proper operation of the system built up on the basis of a stable financial market.
Without violating the above-mentioned basic objective, the CBY carries out its activities within the framework of the Government\s economic policy.
Therefore, the task of the CBY is to formulate and implement cash in line with the main objective of achieving price stability and maintaining this stability.
Though it is recognized that monetary policy cannot directly contribute to economic growth and job creation in the long run, it can - by creating a stable financial environment - fulfill important preconditions for economic development.
Monetary Policy Framework
The current monetary policy framework in Yemen is the monetary targeting system. It focuses on the growth rate of money aggregates. The target, or the mediator or the nominal anchor, is the money in its broadest sense, while the reserve funds are the primary operational objective.
The monetary targeting framework is based on the premise that long-run price growth is affected by the growth of the money supply.
Monetary Policy Instruments and Operations
The tools available for cash operations include the following:
- Direct sale/purchase of government securities
- Issuance of certificates of deposits
- Foreign exchange (FX) transactions
- Repo transactions
- Permanent facilities
- Reserve requirements
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