JEDDAH: Saudi Arabian Monetary Agency (SAMA) has lowered its overnight reverse repo rate by 25 basis points to 0.50 percent, effective immediately as inflation in the Kingdom continues to inch down. “This measure has been taken in view of the easing of inflationary pressures in the domestic economy and ample system liquidity warranting a realignment of the reverse repo rate with short dated rates,” SAMA said in a statement on its website.
The central bank kept its benchmark repurchase rate unchanged in a bid to spur more lending to businesses and households.
“SAMA’s move is intended to make it economically less opportune for banks to place deposits with the central bank. Given that inflation is less of a worry than growth, the choice by SAMA is now to take steps to unlock deposits and engage and empower banks to have access to credit,” John Sfakianakis, chief economist at SABB (Saudi British Bank), said.
He said banks, over the past four months, have alarmingly increased their deposits (reverse repo) with SAMA surpassing SR73 billion as of February. The debate about the lack of liquidity should terminate here as banks have ample liquidity.
“Banks can choose to be more risk averse but the market can’t complaint about the lack of liquidity as there is ample supply, and SAMA can manage liquidity. Yet the allocation of liquidity in the form of loans remains a bank prerogative. It is up to the banks to take the necessary steps to provide price-sensitive facilities in order to support economic growth,” Sfakianakis said.
SAMA Gov. Muhammad Al-Jasser told a banking conference in Manama recently that Saudi Arabia has no shortage of liquidity. “We should not exaggerate the problem of liquidity in the Gulf,” he said.
Saudi Arabia’s annual inflation rate slowed to 6 percent in March from 6.9 percent in February due mainly to a decline in food price growth and local demand as the global economy slows.
Inflation rate in the Kingdom has fallen for five consecutive months, hitting 6 percent in March — its lowest rate in over a year. Inflation stood at 9.6 percent in March 2008. Inflation peaked at more than 11 percent in July 2008.
The repurchase rate of 2 percent is down from 5.5 percent last October, while the reverse repo rate is down from 2.5 percent and reserve requirements for banks making deposits have almost halved.
The Kingdom has been better able to offset the global economic meltdown’s impact due to cash surpluses accrued from oil’s rally in the first half of 2008.
— With input from agencies
