x Abu Dhabi, UAETuesday 16 January 2018

Saudi central bank cuts rates again to boost liquidity

The second reduction in a month to keep credit markets moving and boost domestic liquidity.

RIYADH // Saudi Arabia's central bank slashed its benchmark lending rate by 100 basis points today, the second reduction in a month. The Saudi Arabian Monetary Agency, or Sama, cut its key repo interest rate by one hundred basis points to three per cent and also cut the amount of cash reserves banks are required to hold. The reserve rate was cut to seven per cent from its previous level of ten per cent, as part of an effort to boost domestic liquidity; in previous months the rate was 13 per cent. On Saturday the Saudi Tadawul market crashed by 9.2 per cent on the back of oil price falls and a decision by the Saudi Arabian Oil Company to review contract pricing in line with falling commodity prices. In a circular sent to bankers, Sama explained the move: "These measures are taken against the backdrop of receding inflationary pressures and ensuring that adequate system liquidity is available to meet steady domestic demand".

Two bankers estimated the reserve change will release about $2.4 billion (Dh8.8bn) to commercial banks ? funds held in the central bank as cash reserves. Fabio Scacciavillani, an economist at the Dubai International Financial Centre, welcomed the cut, saying it was necessary to "reactivate credit to the real economy, so it does not make much sense to have high interest rates". Standard Chartered Bank analyst Mary Nicola said the move was taken because the global focus has shifted from inflation concerns to growth. The rate cuts are the second by the Saudi Arabian Monetary Authority in less than two months and are intended to "sustain private sector credit growth," John Sfakianakis, chief economist at Saudi British Bank in Riyadh, said.

Inflation eased to 10.35 per cent in September from 10.9 per cent in August. *With agencies afoxwell@thenational.ae