Squeeze on Saudi banks eases further
dubai — Saudi Arabian money market rates dropped for a second straight day on Monday 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 per cent from Sunday’s 2.36 per cent, 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 per cent last week, its highest since January 2009, from below one per cent 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
As long as external bond issuance acts as a substitute to domestic bond issuance, it should help to gradually ease domestic liquidity Jean-Michel Saliba, regional economist at Bank of America Merrill Lynch
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.
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.
The international bond sale should allow the Saudi government to reduce its domestic bond sales for the next two or three months, Jean-Michel Saliba, regional economist at Bank of America Merrill Lynch, said. “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.