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Yemen inflation climbs to 16-mth high in June, reserves down

* Rise fuelled by tobacco and qat

* Food inflation slows

* Core inflation at 7-month high

* Foreign reserves at 11-month low of $5.6 bln

DUBAI, Sept 30 (Reuters) - Yemen's annual inflation edged up to a 16-month high of 14.5 percent in June, fuelled mainly by increases in the cost of tobacco and the stimulant qat, while foreign currency reserves dropped to their lowest level for nearly a year in July.

Inflation had subsided from a peak of 25 percent in October 2011 to as low as 5.5 percent last November, as the economy began recovering from two years of political unrest. But price growth rebounded again to hit 14.2 percent in May this year.

On a month-on-month basis, prices rose 0.8 percent in June, up from a 0.3 percent increase in May, central bank data showed on Monday.

Food inflation in the poor Arabian Peninsula state eased to 15.1 percent year-on-year in June from May's 16.6 percent, which was its highest level since January 2012.

But annual price growth of tobacco, cigarettes and qat, a mild stimulant leaf that many of Yemen's 25 million people chew daily, rose sharply to a 17-month high of 32.8 percent in June from 27.1 percent in the previous month.

Excluding food and qat, annual consumer price inflation was 7.2 percent in June, the highest rate since November 2012, after staying unchanged for three consecutive months.

The central bank cut interest rates by 5 percentage points between last October and February this year to a three-year low of 15 percent to support an economic recovery.

The central bank's head said on Sunday that the bank would need to watch inflation before deciding whether to reduce borrowing costs again. He added that the headline inflation figure was expected to decelerate to around 6-8 percent by the end of this year.

The International Monetary Fund forecast in April that Yemen's inflation would average 7.5 percent in 2013, down from 10.2 percent in 2012.

Meanwhile, the central bank's gross foreign assets fell to an 11-month low of $5.6 billion in July, equivalent to six months of imports, from $5.7 billion or 6.1 months at the end of June, the data showed.

Yemen, the second poorest Arab state after Mauritania, depends on crude oil exports to replenish its foreign currencyreserves and cover up to 70 percent of the government budget. But frequent attacks on pipelines by disgruntled tribesmen have squeezed the government's income.

Saudi Arabia provided a $1 billion loan to boost Yemen's central bank reserves last year but other foreign aid out of $7.9 billion pledged by donors in 2012 has been slow to arrive.

The country's oil exports rose 9.1 percent month-on-month to $231 million in July but were down 15.6 percent from their year-ago level, the data showed.