Growth in Bahraini money supply jumped to 38.9 per cent in March, its fastest pace in at least seven years, as investments in time and savings deposits grew almost 49 per cent, central bank data showed.

M3, the broadest measure of money circulating in the smallest Gulf Arab economy, rose to BD7.06 billion ($18.73 billion) on March 31, compared with BD5.08 billion a year earlier, the central bank said in a monthly report on Sunday.

That was the steepest year-on-year rise in money supply since at least 2001. Time and savings deposits jumped 48.7 per cent to BD4.2 billion, compared with a gain of 44.5 per cent a month earlier, the data showed.

Investments in demand deposits also surged 27.8 per cent to BD1.6 billion, the central bank added.

The central bank's net foreign assets also jumped 80.9 per cent in the year to March to BD1.88 billion, it said.

Money supply growth, driven by oil prices at record highs above $100 a barrel, is fuelling inflation across the Gulf Arab region.

In Bahrain, annual inflation was about 5.24 per cent in March, driven by food prices, official data showed last month.

Like most of its neighbours in the world's biggest oil-exporting region, Bahrain pegs its currency to the dollar, forcing it to track US interest rate cuts and constraining its fight against inflation.

Investors have piled into Gulf currencies since late last year on expectations some oil producers could revalue their currencies to offset inflation as the dollar tumbled to record troughs against the euro this year.

Like some of its neighbours, Bahrain has raised bank reserve requirements to soak up some of the excess liquidity.-Reuters