Saudi Arabia to drain liquidity to counter Fed and Libor rise

ankara — Saudi Arabia’s central bank plans to drain excess liquidity from the banking system to mitigate pressure on the riyal’s peg to the dollar as US interest rates rise, Governor Ahmed Abdulkarim Alkholifey said.

The Saudi Arabian Monetary Authority, as the central bank is known, will allow some deposits placed with commercial banks in 2016 to mature without rolling them over, he said, boosting a key interbank rate for riyals that has lagged Libor, its London equivalent for dollars, and raised the prospect of capital flight. “Some amounts of deposits are maturing

some amounts of deposits are maturing in the banking system Ahmed Abdulkarim Alkholifey, Governor, Saudi Arabian Monetary Authority

in the banking system,” Alkholifey told Bloomberg in Washington, where he attended the International Monetary Fund and World Bank spring meetings. “We’ll let them mature and they will be back to the central bank instead of the banking system, and this will siphon off the liquidity to the system.” Climbing US borrowing costs pose a dilemma for Sama, which must strike a balance between overcoming the worst economic slowdown since the global financial crisis a decade ago and maintaining its currency peg to the dollar. Though it has tracked US Federal Reserve decisions through its reverse repurchase rate, Saudi Arabia had, until last month, avoided raising its benchmark repurchase rate due to concerns this would stifle growth.

It pre-empted the Fed by raising its benchmark rate on March 15 for the first time since 2009 after the Saudi rate, Saibor, fell below Libor.