Saudi inflation risks topping 10% in March

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RISING COSTS: Inflation risks topping 10% in March after money supply the previous month surged over 26%, Sfakianakis said. (Getty Images)

Annual inflation in Saudi Arabia could hit a double-digit figure in March after money supply rose over 26% the previous month, the chief economist of HSBC's local subsidiary SABB said on Saturday.

Annual inflation in Saudi Arabia reached 8.7% in February, its highest level in 27 years.

"The government continues to spend the money unabatedly," John Sfakianakis told newswire Reuters, reacting to the announcement by the Saudi central bank of money supply data for February.

"They have chosen to fiscally support the economy because this is a top-down economy, the government needs to motivate the private sector to create jobs amid a surge in inflation and the challenge of unemployment," he added.

"The rise in February's money supply suggests inflation can hit a double-digit figure in March or the month after, which has not happened since the 1970s," he added.

Annual money supply growth in Saudi Arabia accelerated to 26.2% in February even as the kingdom tightened lending curbs to control spiralling inflation, central bank data showed on Saturday.

M3, the broadest measure of money circulating in the Saudi economy, grew to 827.35 billion riyals ($220.6 billion) at the end of February compared with 655.83 billion riyals a year earlier, Saudi Arabian Monetary Agency (SAMA) data showed.

Money supply growth was 23.9% in January.

Central bank net foreign assets rose 47.1% in February to 1.24 billion riyals, the data showed.

The kingdom has raised bank reserve requirements three times since November, forcing banks to keep more money in their vaults as the US Federal Reserve repeatedly slashed interest rates since September.

The Saudi central bank gradually raised the reserve ratio from 7% in November to 12% in April.

Saudi Arabia, which has been linking its riyal to the dollar for 22 years, lowered its reverse repurchase rate, which guides bank deposit rates, by two percentage points after the Fed cuts. It has kept its repurchase rate, which guides lending rates, steady at 5.5%. (Reuters)

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