Saudi money supply accelerates to 20.2%

Riyadh: Annual growth in Saudi Arabia's money supply accelerated to 20.2 per cent in October from 19.4 per cent in September, central bank data showed yesterday, after the kingdom boosted liquidity to keep the economy growing.

M3, the broadest measure of money circulating in the economy, rose to 901.09 billion riyals (Dh883.15 billion) by end-October compared with 749.78 billion riyals a year earlier, the Saudi Arabian Monetary Agency said in a monthly report.

September money supply growth was the lowest since April. Annual growth in money supply was 21.8 per cent in August.

"It was expected," said John Sfakianakis, chief economist at HSBC's Saudi affiliate.

"They [Sama] injected cash and cut both the repo rate and reserve requirements since the banks had credit capacity limitations. Sama's primary concern now is growth."

On October 12, Sama reduced the repo rate by 50 basis points to 5 per cent and also lowered reserve requirements to 10 per cent from 13 per cent, a move that was expected to release about 10 billion riyals to commercial banks.

Nine days later Sama poured $3 billion in deposits into the banking system to ease liquidity pressures. It was Sama's first injection of US dollars in a decade.

Money supply growth is an indicator of future inflation, which in Saudi eased to 10.35 per cent in Sep-tember from 10.9 per cent in August.

"For money supply growth to accelerate in October does not necessarily mean that inflation will rise for that month because import costs are declining quite fast," HSBC said.

But money supply growth could very well accelerate further in November, he said, after Sama cut the repo rate twice after October 12 to 3 per cent and cut reserve requirements to 7 per cent.

The acceleration in money supply's growth in October stemmed mainly from residents' foreign currency deposits and banks repo transactions with private parties. These rose almost 8 per cent to 155.53 billion riyals.

Demand deposits added 0.65 per cent in October from the month earlier to 335.78 billion riyals while time and savings deposits rose 0.43 per cent to 327.9 billion riyals, the data showed.

The central bank's net foreign assets stood at 1.65 trillion riyals at the end of October.

They [Sama] injected cash and cut both the repo rate and reserve requirements since the banks had credit capacity limitations. Sama's primary concern now is growth."