JEDDAH: The Saudi Arabian Monetary Agency (SAMA) lowered its benchmark repurchase rate by 100 basis points to 4 percent yesterday to boost confidence amid the global financial crisis. However, the central bank kept its reverse repurchase rate unchanged at 2 percent.

Kuwait and Bahrain also joined Saudi Arabia in lowering rates to ease credit conditions while the United Arab Emirates decided for the first time not to match a US interest rate cut.

The US Federal Reserve cut its key lending rate a half point Wednesday to match a historic low of 1 percent in the latest action to ease a credit crisis that is strangling the US economy.

Qatar, which sat out the last round of rate cuts earlier in October, also did not touch interest rates immediately. Bahrain slashed its repurchase and overnight rates by a massive 125 basis points yesterday and said the move reflected current interbank lending rates. The country lowered its repo and overnight rates to 3.50 percent from 4.75 percent and expanded acceptable collateral for overnight funds to include ijara sukuk, a type of Islamic bond.

Following a number of measures to try to stabilize money markets this month, UAE and Saudi interbank rates have stabilized but not fallen after nearly doubling in four months.

In Kuwait, on the other hand, interbank rates are down 25 basis points this month, while Bahraini interbank rates have dropped more than 30 basis points in the past two weeks. Oman sets interest rates once a week, on Mondays.

According to SAMA’s data released yesterday, annual growth in Saudi Arabia’s money supply slowed to 19.39 percent in September from 21.81 percent in August.

M3, the broadest measure of money circulating in the economy, rose to SR888.45 billion compared with SR744.13 billion a year earlier and SR860.70 billion in the second quarter of this year, SAMA said.

Money supply growth is an indicator of future inflation, which in Saudi Arabia eased to 10.9 percent in August from a 30-year high of 11.1 percent in July.

Money held in demand deposits fell 2.5 percent in September from the month earlier to 333.58 billion riyals while time and savings deposits continued to grow, advancing 2.5 percent month-on-month to 326.5 billion riyals, the data showed.

SAMA’s net foreign assets stood at SR1.62 trillion at the end of September, up 67.5 percent a year earlier, that compared with SR1.56 trillion at the end of August. “The measures taken are aggressive given that SAMA cut rates 50 basis points more than the Fed,” John Sfakianakis, chief economist at SABB (The Saudi British Bank), said.

He added that there are motivating factors behind this move. First, SAMA’s intention is to bring down interbank rates so as to bring the cost of borrowing lower. Second, inflationary pressures seem to be on a declining path as indicated from the September money supply numbers that seem to be satisfactorily slowing. “It remains to be seen how interbank rates will behave in the coming week and how low will they go. High borrowing costs are not a boon for the private sector which operates in a tight and higher cost of funding environment,” Sfakianakis said.

For much of this year, Gulf states had responded to Fed cuts by lowering only deposit rates while keeping their lending rates on hold to prevent lower borrowing costs from stoking record-high inflation.

But the liquidity situation of Gulf banks has taken a 360-degree turn since the summer as the credit crisis spurred by defaults on US subprime mortgages spread across the world, prompting Gulf officials to unleash a slew of responses.

In contrast to the UAE, Kuwait and Bahrain lowered interest rates for the second time this month in a bid to defrost frozen lending markets.

SAMA Gov. Hamad Al-Sayari gave assurance earlier this week that no Saudi bank faces liquidity problem.

The HSBC Gulf Business Confidence Survey for the third quarter of 2008, which was released Wednesday, reveals a further decline in optimism and confidence among the Gulf’s business community to a mark of 92, the lowest since the survey began in February 2007.

While two states — Saudi Arabia and Bahrain — registered a slight rise on the previous quarter, the confidence score in all other countries fell.

Given the survey was conducted at a time when the global financial crisis deepened, regional equity markets fell and the oil price slumped, the results show a strong degree of resilience to global factors among the region’s business people.

According to the survey, 57 percent expect to see an increase in revenue in the next three months, 48 percent expect to increase their investment budget year-on-year and 47 percent expect to increase profits this year. Some 65 percent thought the fourth quarter of 2008 would be much better or somewhat better than the previous quarter.

In spite of these optimistic indicators, pressure is building on the region’s private sector from a number of sources. The lowest number yet recorded — 47 percent — said they would be able to grow or maintain their profit margins, a clear sign of rising costs and increased competition.