Saudi Arabia's annual inflation eased to 4.7 per cent in March thanks to a monthly dip in food prices, data showed on Wednesday, and analysts saw the biggest Arab economy keeping interest rates steady this year.

Inflation in the world's top oil exporter has been falling since it touched 18-month highs of 6.1 per cent in August, and slowed to a 10-month low of 4.9 percent in February.

But analysts say demand will be boosted by a package of government handouts prompted by political turmoil elsewhere in the Middle East and see inflation averaging 5.6 per cent this year, leading kingdom's central bank to keep rates unchanged at 2 per cent.

That contrasts with Qatar, which cut its main overnight deposit rate by 50 basis points last week in a move analysts said would boost domestic lending and ease capital inflows.

'We don't expect a change in benchmark interest rates in 2011, unlike Qatar last week,' said Monica Malik, chief economist at EFG-Hermes in Dubai.

'On the one hand, credit growth is starting to recover, and the central bank and policy makers would want to see a continuation of that,' Monica noted.

"On the downside, with inflation still above 4 percent, the strong spending plan, and the pick-up in global inflation, we do not expect a reduction in the interest rate. This is a comfortable rate and we expect rates to remain on hold in Saudi," she added.

Private sector credit rose by 6.3 per cent year-on-year at the end of February, compared to 1.6 percent in the same period last year.

Central Bank Governor Muhammad al-Jasser said in January that lenders had taken enough measures against bad loans and lending would accelerate this year.

On a monthly basis, Saudi consumer prices rose by 0.3 percent in March, slightly up from a 0.2 percent increase in the previous month, data from the Central Department of Statistics showed.

"I would not expect inflation to continue to go down by this much because it has already declined by a substantial amount," said John Sfakianakis, chief economist at Banque Saudi Fransi.

"We should see in the coming months an increase. I am surprised inflation has fallen this amount in such a short period of time," he added.-Reuters