JEDDAH, 14 November 2006 — Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency, yesterday ruled out any change in monetary policy to prop up the plunging stock market. “We see no need,” Sayari told Al-Arabiya television, adding, “The... rise in liquidity remains at reasonable levels.”
According to a report by the National Commercial Bank (NCB), Saudi banks are in the midst of a liquidity glut driven by still strong growth in deposits coupled with decelerating growth in fund utilization rates.
On a 12-month basis, broad money (M3) grew 15.6 percent to SR611.9 billion as of August this year. During July and August 2006, the average monthly growth rate in M3 stood at 1.1 percent, slightly up from 0.7 percent in the second quarter of this year but much lower than the 1.9 percent recorded in the buildup to the equity market crash in February 2006.
Said Al-Shaikh, chief economist of NCB, told Arab News: “The fact that the Saudi riyal is pegged to the dollar limits the role SAMA can play with respect to the monetary policy.”
Al-Shaikh added: “The tumbling of stock market so far this year came at the time of rising interest rates. The Federal Reserve of the US hiked interest rates to 5.25 percent recently and accordingly the interest rates on Saudi riyal followed suit.”
He said: “The rise of interest rates has negative impact on equity markets. With dividend yield of Saudi stock market at around 2.2 percent, the earnings on Saudi riyal deposits have become very attractive at a time when the stock market is volatile.”
The Saudi stock market reacted negatively to Sayari’s remarks and tumbled 228.91 points or 2.64 percent yesterday to close at 8,433.52 points. The index jumped 643.36 points on Sunday.
The stock market turnover, however, rose yesterday to SR15.58 billion compared to SR14.73 billion on Sunday.
SAMA also sees no need to tighten restrictions on consumer lending to maintain financial stability.