Cautious Saudi experts hail repo rate cut

Riyadh: Several Saudi financial experts and analysts described the new measure by the central bank to cut the repo rate as a bold step to bolster the Arab world's largest bourse and boost bank liquidity.

Speaking to Gulf News, they said that the decision by the Saudi Arabian Monetary Agency (Sama) to cut its key benchmark lending rate for the first time in almost two years is an unprecedented step in rescuing its capital market, which plunged almost six per cent to a four-year low on the week's opening day on Saturday.

At the same time, they warned against inflationary pressures that might resurface as well as against money pouring into the hands of speculators.

Sama on Sunday lowered its benchmark repo rate to 5 per cent from 5.5 per cent, and lowered the amount of money commercial banks must hold as reserves to 10 per cent from 13 per cent, as it seeks to address liquidity shortages.

Some Gulf central banks made coordinated rate cuts last week following the example of the US Federal Reserve, which reduced interest rates by 0.50 per cent.

Prominent Saudi banking expert Fahd Al Shaibani called the Sama move to lower bank reserve requirements a bold step that would enable local banks to increase their liquidity and pump more money into the market.

On his part, Fadl Bu Ainain, a financial analyst, sees the repo cut as a precautionary measure to enhance liquidity in the banking sector.

Noted Saudi economist Ebrahim Al Olayyan echoed the same sentiments, saying the SAMA measure would bolster liquidity in the local banks and encourage them to extend loans and credit facilities to both individuals and firms.

At the same time, he cautioned that the banks should be vigilant that this money would not go into the capital market for speculative dealings.

Al Olayyan noted that Saudi Arabia was not exposed to the global financial crisis except by its capital market.

Al Attiyah's assurance: GCC can withstand crisis

The Secretary-General of the Gulf Cooperation Council (GCC) Abdul Rahman Bin Hamad Al Attiyah emphasised that the GCC economy is strong enough to withstand the current global financial crisis.

"The economies in all the six GCC states are in an excellent position and are witnessing robust growth, thanks to the surpluses of money that have been realised over the past five years," he said in a press statement in Riyadh yesterday.

According to Al Attiyah, Gulf banks and commercial firms enjoy high liquidity. "This was mainly because of the huge volume of investments that were pumped into the local markets in addition to the increase in the crude oil prices," he said adding that the announcements made by the central banks in the GCC states that they were ready to ensure increased liquidity of local banks if needed have produced electrified impact on the economy. "All these contributed substantially in making the GCC states to tackle the current global financial crisis," Al Attiyah added.

Meanwhile, the General Secretariat of the Federation of GCC Chambers of Commerce and Industry warned that the financial crisis would likely to pose a threat to the development programmes as well as economic, investment and financial activities in the GCC states.

Dr Essam Fakhrou, chairman of the federation, urged all concerned to shoulder responsibility for safeguarding the interests of the GCC economy.