The broadest measure of money circulating in the economy and a factor potentially influencing inflation, M3 grew 4.6 percent in March year-on-year, down from 5.6 percent in February and 8.3 percent in January, due mainly to a 12 percent drop in time and savings deposits, data published by the Saudi Arabian Monetary Agency (SAMA) showed.
In February, time and savings deposits fell by almost 10 percent year-on-year.
Demand deposits, a more liquid component of M3, rose by an annual 20 percent in March after adding more than 21 percent in February.
Analysts believe private firms and individuals have been injecting money into the economy from savings deposits.
Annual inflation in Saudi Arabia inched up to 4.7 percent in March after it accelerated to 4.6 percent in February, its highest level since June.
SAMA data showed that bank claims on the private sector - which measure lender confidence in the economy's prospects - rose by an annual 2.4 percent in March versus a 1.6 percent annual rise in February.
Compared to their level the previous month, bank claims on the private sector rose by 0.5 percent in March. That is almost half their monthly growth in February, which was their highest month-on-month jump since August.
Bank credit to the private sector, which excludes bank investment in private securities, rose by an annual 1.3 percent in March to SR717 billion against a 0.6 percent annual growth in February and less than 0.1 percent in January.
Saudi bank credit growth was flat throughout much of 2009 due to the global slump and after defaults by local family firms inflated provisions for bad loans, leading to a drop in profits for most Saudi banks' in 2009 and the first quarter of 2010.
John Sfakianakis, chief economist at Banque Saudi Fransi, downplayed the decline in money supply growth.
"The decline in money supply is more linked to the credit story of the economy than any real link to growth. Growth in the economy is picking up as shown by other macroeconomic data such as the high growth in letters of credit," he said.
Letters of credit are a source of payment for trade transactions issued by banks.
The annual growth in letters of credit stood at 9.2 percent in March down from 10.9 percent in February. Compared to the previous month, letters of credit fell 2 percent in March to SR15.4 billion.
March marked however a return to annual growth for SAMA's net foreign assets after months of annual declines. These rose by an annual 1.1 percent in March to SR1.5583 trillion after they were down by about 2 percent in February.
SAMA has said it started drawing on reserves accumulated during years of high oil prices to keep the economy going.
