IN THIS EDITION
1st: Exchange rate shock.
2nd: Impact of exchange rate shock on inflation.
3rd: Response to crisis.
The exchange rate is one of the most sensitive indi-cators to political and economic volatility, conflict and war. It reflects the stability or instability of any country. As a result of the successive shocks sustained by Yemen’s national currency during the ongoing war, the exchange of the US dollar increased by 33.3% in just two weeks and peaked at YER800/US dollar at the end of September 2018, influenced by, among other factors, the increase in global prices of fuel imports, which add-ed more pressure on the exchange market that is already suffering from foreign exchange scarcity.
In a country that relies mainly on imports to cover most of its food and non-food needs, the rapid collapse of the national currency has confused the citizens and forced large businesses to close their doors for several days. Prices have skyrocketed, thus increasing the cost of minimum food basket by 27.6% in the first week of October, compared to the average in August 2018 (1). As a result, approximately 3-5 million additional people may likely to join people identified as in acute need of emergency food assistance (2).
In response to the currency crisis, many fruitful measures were taken and grants were provided to support the national currency and curb the depreciation of the Yemeni Riyal against the US dollar. Thus, the exchange rate decreased to less YER600/ US dollar on November 19, 2018. Whatsoever the situation is, sustaining the positive impact of these interventions requires mobilizing more donor support, resuming hydrocarbon exports and resolving the crisis of monetary authority division in the country.