Yemen's central bank cut its deposit rate, the key rate which it uses to adjust monetary policy, by 3 percentage points to 15 per cent, the bank said in a statement carried by state news agency Saba on Thursday.

The central bank last trimmed the rate, a benchmark for commercial banks taking deposits from their customers, in October, when there was a cut of 2 percentage points to 18 per cent as inflation came down to single digits and the Yemeni rial stabilised following political turmoil.

An International Monetary Fund official told Reuters last month that Yemen had room to gradually reduce interest rates in order to support economic recovery as inflation continued to decline.

The official inflation rate in Yemen, the poorest country in the Arabian Peninsula, spiralled as high as 25 per cent year-on-year in October 2011. It subsided to 5.5 per cent in November 2012, the latest central bank data show.

The Yemeni rial tumbled to about 243 to the US dollar in 2011 during a year of political unrest which led to the rise of al Qaeda militants and ultimately toppled President Ali Abdullah Saleh in February 2012. Some violence continues, but the currency has now stabilised around 215.

Yemen's economy should expand by around 4 per cent this year, the IMF has forecast, after it stabilised in 2012. It shrank 10.5 per cent in 2011, the first drop since the 1990 unification of the north and south of the country. – Reuters