Saudi Arabia is wrestling down money rates, says central bank

riyadh — 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 on Monday.

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 Al Kholifey said a modest pull-back of rates in the past three weeks, with the three-month Saudi interbank offered rate falling to 2.189 per cent from 2.386 per cent, showed authorities had the situation under control. The rate was below 0.80 per cent 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 one per cent,” Al 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

Now we’re more secure, and we’re reassured that Saibor will continue to fall, although we do not expect it to hit one per cent

Ahmed Al Kholifey Central Bank Governor, Saudi Arabia

bank launched seven-, 28- and 90day 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 two per cent.

Pressure on liquidity has also been eased by the finance ministry’s decision not to make a monthly issue of domestic bonds in October. Al 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; Al 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 privatesector creditors. An official document seen by Reuters last week showed it had set aside 100 billion riyals ($26.7 billion) for that purpose.