- Title: Saudi Arabia is wrestling down money rates, central bank says
- Date: 14th November 2016
- Summary: RIYADH, SAUDI ARABIA (NOVEMBER 14, 2016) (REUTERS) **** WARNING CONTAINS FLASH PHOTOGRAPHY **** SAUDI CENTRAL BANK GOVERNOR AND MEDIA SEATED AT NEWS CONFERENCE FLAG-LOGO OF SAUDI MONETARY AGENCY (SAMA) (SOUNDBITE) (Arabic) CENTRAL BANK GOVERNOR AHMED AL-KHOLIFEY, SAYING: "We are not worried about our investments (in the United States) enjoy sovereign immunity and don't think there is anything I to worry about now." CONFERENCE IN PROGRESS REPORTER ASKING THE GOVERNOR (SOUNDBITE) (Arabic) CENTRAL BANK GOVERNOR AHMED AL-KHOLIFEY, SAYING: "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." REPORTER ASKING THE GOVERNOR (SOUNDBITE) (Arabic) CENTRAL BANK GOVERNOR AHMED AL-KHOLIFEY, SAYING: "Now we're more secure, and we're reassured that SAIBOR will continue to fall, although we do not expect it will hit one percent." REPORTERS WRITING REUTERS CORESPONDENT ASKING DEPUTY GOVERNOR (SOUNDBITE) (English) DEPUTY CENTRAL BANK GOVERNOR FOR INVESTMENT AYMAN AL-SAYARI, SAYING: "On the international bonds proceeds, short answer to question No, hasn't been deposit with local banks yet." CONFERENCE IN PROGRESS GOVERNOR THANKING REPORTERS AND LEAVING VARIOUS OF LOGO OF SAUDI MONETARY AGENCY EXTERIOR OF MONETARY AGENCY HEADQUARTERS IN RIYADH
- Embargoed: 29th November 2016 16:29
- Keywords: Saudi Arabia wrestling down money interest rates central bank
- Location: RIYADH, SAUDI ARABIA
- City: RIYADH, SAUDI ARABIA
- Country: Saudi Arabia
- Topics: Economic Events
- Reuters ID: LVA00158F3VD9
- Aspect Ratio: 16:9
- Story Text: 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 (November 14).
Shrunken flows of petrodollars through the banking system have sent interbank money rates SAIBOR= 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 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 U.S. dollars.
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