JEDDAH: The Saudi Arabian Monetary Agency (SAMA) yesterday lowered its reverse repo rate from 50 basis points to 25 basis points to boost credit growth. SAMA left its benchmark repurchase rate unchanged at 2 percent. “This measure was taken to normalize domestic money market conditions against the backdrop of stable macroeconomic activity,” SAMA said in a statement.
Cutting the reverse repo rate usually encourages banks to reduce deposits with the central bank and so increases the incentive for commercial lending.
Despite recent cuts, bank deposits with SAMA have more than doubled to some SR138 billion by end-April from SR55.4 billion by end-October.
“SAMA continues to perform its part to help unlock additional funds onto the economy. It remains to be seen if the banking sector’s willingness to be risk averse by maintaining a conservative lending outlook toward the private sector would prevail given the rate change,” John Sfakianakis, chief economist at SABB, said.
For the banks a reverse repo cut means that the economic cost of maintaining money with SAMA is reduced, he added.
SAMA’s step, which takes effect immediately, is the latest by the government to stimulate bank lending that has so far come slowly despite earlier economic stimulus efforts. The cut is the second this year by SAMA. In April, it lowered the rate to 50 basis points from 75 basis points.
“SAMA’s move will encourage the loan cycle for banks to lend more money to the private sector to enhance economic development,” Faisal Alsayrafi, managing director and CEO of the Jeddah-based Financial Transaction House, said after the central bank’s announcement.