Saudi is wrestling down money rates: CB

De­layed pay­ments should push down rates, no longer term re­pos

Kuwait Times - - BUSINESS -

Saudi Ara­bia’s cen­tral bank is suc­ceed­ing in wrestling down mar­ket in­ter­est rates and ex­pects to see fur­ther de­clines as it fights a liq­uid­ity squeeze caused by low oil prices, top of­fi­cials said yes­ter­day. Shrunken flows of petrodol­lars through the bank­ing sys­tem have sent in­ter­bank money rates soar­ing to seven-year highs this year, mak­ing it more ex­pen­sive for com­pa­nies to raise money and con­tribut­ing to a sharp slow­down in the econ­omy.

But cen­tral bank Gover­nor Ahmed AlKho­lifey said a mod­est pull-back of rates in the past three weeks, with the three-month Saudi in­ter­bank of­fered rate fall­ing to 2.189 per­cent from 2.386 per­cent, showed author­i­ties had the sit­u­a­tion un­der con­trol. The rate was be­low 0.80 per­cent in Au­gust 2015. “Now we’re more se­cure, and we’re re­as­sured that SAIBOR will con­tinue to fall, although we do not ex­pect it to hit 1 per­cent,” Kho­lifey told his first news con­fer­ence since he was ap­pointed in May.

Author­i­ties are us­ing sev­eral tools to bring down rates. In Septem­ber and Oc­to­ber, the cen­tral bank launched seven-, 28- and 90-day re­pur­chase agree­ments that it could use to sup­ply banks with funds; pre­vi­ously it had typ­i­cally only used one-day re­pos. Ay­man Al-Sa­yari, deputy gover­nor for in­vest­ment at the cen­tral bank, told the news con­fer­ence that a num­ber of banks had used the new in­stru­ments to ob­tain liq­uid­ity, though he de­clined to say how much. The cen­tral bank has no plan to in­tro­duce re­pos longer than 90 days, he added, not­ing that money rates were ap­proach­ing the cen­tral bank’s repo rate, which it uses to sup­ply funds. The rate is 2.00 per­cent.

Pres­sure on liq­uid­ity has also been eased by the fi­nance min­istry’s de­ci­sion not to make a monthly is­sue of do­mes­tic bonds in Oc­to­ber. Sa­yari said the min­istry would de­cide on its plan for the rest of 2016 and com­mu­ni­cate that to the mar­ket. Two other fac­tors could bring rates down fur­ther. Last month, the gov­ern­ment raised $17.5 bil­lion in its first in­ter­na­tional bond is­sue; Sa­yari said the pro­ceeds had not yet been de­posited in lo­cal banks. Bankers be­lieve that if they are, that could pro­vide a big boost to liq­uid­ity.

Also, the gov­ern­ment has said it will aim by the end of 2016 to pay bil­lions of dol­lars of un­paid debts that it owes con­struc­tion com­pa­nies and other pri­vate-sec­tor cred­i­tors. An of­fi­cial doc­u­ment seen by Reuters last week showed it had set aside 100 bil­lion riyals ($26.7 bil­lion) for that pur­pose.

“The pay­ment of de­layed pay­ments will have a pos­i­tive im­pact on liq­uid­ity in the bank­ing sec­tor. It de­pends on the size, but we ex­pect it to have a good im­pact on the banks, es­pe­cially on SAIBOR,” Kho­lifey said. Slow­ing de­posit growth due to low oil prices has brought the loan-to-de­posit ra­tio of Saudi banks near the reg­u­la­tory ceil­ing of 90 per­cent, but Sa­yari said there was no plan to change the ceil­ing, es­pe­cially since new funds were ex­pected to en­ter banks. He re­it­er­ated the cen­tral bank’s com­mit­ment to keep­ing the riyal pegged at 3.75 to the dol­lar. Some econ­o­mists have spec­u­lated that to re­duce out­flows of cur­rency from Saudi Ara­bia, author­i­ties could im­pose fees on re­mit­tances abroad by the some 10 mil­lion for­eign work­ers in the king­dom. Kho­lifey said no such a step was in­tended, how­ever, be­cause although the re­mit­tances were huge, the num­ber of for­eign work­ers was also large.

Asked whether the cen­tral bank might put some of its for­eign as­sets into the Chi­nese yuan be­cause of grow­ing trade and in­vest­ment ties with China, Sa­yari de­clined to say, merely not­ing that ex­change rate sta­bil­ity would be its pri­or­ity. Most of its $546.7 bil­lion of net for­eign as­sets are be­lieved to be in US dol­lars. —Reuters

NEW YORK: The ABInBev logo ap­pears above the post where it trades on the floor of the New York Stock Ex­change. Global stock mar­kets mostly climbed yes­ter­day and the dol­lar surged to multi-month highs with traders shrug­ging off con­cerns over the Trump pres­i­dency.—AP

RIYADH: Gover­nor of Saudi Ara­bian Mon­e­tary Agency, Ahmed Al-Kho­lifey, holds a press con­fer­ence in Riyadh yes­ter­day.—AFP

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