Saudi money rates drop as liq­uid­ity eases Lower rates could ease stress on com­pa­nies, econ­omy

Kuwait Times - - BUSINESS -

Saudi Ara­bian money mar­ket rates dropped for a sec­ond straight day yes­ter­day af­ter au­thor­i­ties acted to ease a liq­uid­ity crunch in the bank­ing sec­tor caused by low oil prices. The three-month Saudi in­ter­bank of­fered rate fell to 2.34 per­cent from Sun­day’s 2.36 per­cent, bring­ing its drop over the past two days to 4.2 ba­sis points - the big­gest two-day fall since rates be­gan ris­ing in Au­gust 2015.

Three-month SAIBOR had climbed to 2.386 per­cent last week, its high­est since Jan­uary 2009, from be­low 1.0 per­cent a year ago, pro­pelled by monthly govern­ment is­sues of do­mes­tic bonds to cover a huge bud­get deficit caused by shrunken oil rev­enues. High rates threaten to squeeze com­pa­nies’ fi­nances and hurt the econ­omy, which has al­ready been slow­ing be­cause of govern­ment spend­ing cuts.

In the last cou­ple of weeks, au­thor­i­ties have taken their strong­est ac­tion yet to re­duce up­ward pres­sure on rates. The govern­ment raised a mam­moth $17.5 bil­lion in its first in­ter­na­tional bond is­sue, giv­ing it fi­nan­cial space to sus­pend Oc­to­ber’s of­fer of do­mes­tic bonds.

Last week the cen­tral bank in­tro­duced a new 90-day re­pur­chase agree­ment to in­ject funds into the mar­ket when needed, and it com­mit­ted to low­er­ing its Trea­sury bill is­sues to a max­i­mum 3 bil­lion riyals ($800 mil­lion) per week from 9 bil­lion riyals. Af­ter the in­ter­na­tional bond is­sue, bankers pre­dicted the govern­ment would de­posit at least part of the pro­ceeds in lo­cal banks, which could fur­ther ease liq­uid­ity. It was not im­me­di­ately clear whether this process had al­ready be­gun. Bankers said the ex­tent to which money rates con­tin­ued to fall would de­pend on how soon the govern­ment re­turned to the do­mes­tic bond mar­ket to bor­row.

LIQ­UID­ITY

The in­ter­na­tional bond sale should al­low the Saudi govern­ment to re­duce its do­mes­tic bond sales for the next two or three months, JeanMichel Sal­iba, re­gional econ­o­mist at Bank of Amer­ica Mer­rill Lynch, said in a re­port.

“As long as ex­ter­nal bond is­suance acts as a sub­sti­tute to do­mes­tic bond is­suance, it should help to grad­u­ally ease do­mes­tic liq­uid­ity and have a pos­i­tive knock-on ef­fect on Saudi rates,” he said. Some Saudi bankers, how­ever, said they thought that monthly of­fers of 20 bil­lion riyals in do­mes­tic bonds could re­sume as soon as next month, which would limit any fur­ther fall in rates.

In the long term, pres­sure on rates will de­pend largely on two fac­tors: the govern­ment’s progress in cut­ting its bud­get deficit, which to­talled $98 bil­lion last year, and the pro­por­tion of the deficit which the govern­ment cov­ers with ad­di­tional in­ter­na­tional bond sales in­stead of do­mes­tic debt is­sues, the bankers said. Longer-term Saudi money rates also fell back yes­ter­day, sug­gest­ing the mar­ket be­lieved the im­prove­ment in liq­uid­ity would not merely be short-term. One-year SAIBOR dropped to 2.627 per­cent from 2.641 per­cent.

Ex­pec­ta­tions that the liq­uid­ity crunch would ease, ben­e­fit­ing com­pa­nies and there­fore banks’ loan qual­ity, have helped to boost banks’ share prices sharply in the past two weeks. The sec­tor’s in­dex was up a fur­ther 0.4 per­cent yes­ter­day af­ter­noon. But there were some signs that the de­cline in rates might al­ready be about to slow. Although many in­di­vid­ual Saudi banks quoted lower SAIBOR rates yes­ter­day, the big­gest lender, Na­tional Com­mer­cial Bank, did not, keep­ing its three-month quote at 2.15 per­cent. — Reuters

NEW YORK: Traders Mark Muller (left) and Kevin Lodewick work on the floor of the New York Stock Ex­change yes­ter­day. Wall Street stocks were lit­tle-changed early yes­ter­day fol­low­ing ac­qui­si­tions by Gen­eral Elec­tric and Cen­tu­ryLink as mar­kets ab­sorbed the lat­est twists in the US pres­i­den­tial cam­paign. — AP

RIYADH: The three-month Saudi in­ter­bank of­fered rate fell to 2.34 per­cent from Sun­day’s 2.36 per­cent yes­ter­day, bring­ing its drop over the past two days to 4.2 ba­sis points - the big­gest two-day fall since rates be­gan ris­ing in Au­gust 2015.

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