Saudi Arabia deposits $2 billion in Yemen central bank to back currency

The move was made a day after the Yemeni prime minister issued a public plea for funds to prop up the rial and help stave off hunger in the war-torn country.

"It's not a loan, it's a deposit and the legitimate Yemeni government will not have to pay it back," a source close to the Saudi government said.

Yemen has been divided by nearly three years of civil war between the internationally recognized government, backed by Riyadh, based in the south, and the Iran-aligned Houthi movement which controls the north including the capital Sanaa.

Its currency, the rial, has lost more than half its value against the U.S. dollar and soaring prices have put some basic commodities out of reach for many Yemenis.

Aid workers on the ground told Reuters they expected the rial to rebound due to the Saudi cash injection.

“It is a strategic move to further damage the North,” said one aid worker. It remains to been seen if civil servants in the South will be paid, which would increase the gap with the North, he said.

Based in the southern port city of Aden, Yemen's Central Bank has struggled to pay public sector salaries on which many Yemenis depend amid dwindling foreign exchange reserves.

The conflict has unleashed a humanitarian and economic crisis on the impoverished country. A deadly cholera epidemic erupted last year, and the United Nations has said that Yemen could face one of the deadliest famines of modern times.

"Saving the rial means saving Yemenis from inevitable hunger," Prime Minister Ahmed bin Daghr said on Wednesday.

(Reporting by Sarah Dadouch in Riyadh; Additional Reporting by Stephanie Nebehay in Geneva; Writing by Noah Browning; Editing by Andrew Torchia and Angus MacSwan)