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Discuss this article (0 Comments)No liquidity problems, says Saudi central bank
by This email address is being protected from spam bots, you need Javascript enabled to view it on Wednesday, 08 October 2008
Saudi Arabia's central bank has said that the economy of the world's largest oil exporter is facing "no problems" with liquidity and that stock market declines are "unwarranted".
Muhammed al-Jasser, the vice governor of the Saudi Arabian Monetary Agency (SAMA), said the central bank had the means to deal with any liquidity issues and was ready to provide sufficient liquidity if needed. His comments were carried by the state news agency SPA.
Bank deposits were safe and economic growth healthy, he said, adding that Saudi Arabia had no exposure to troubled Western banks and had yet to use several instruments at its disposal including repurchase rate moves.
Six Saudi banks launched a concerted effort to restore confidence on Tuesday, saying they had no direct exposure to toxic mortgages as shares plunged on fears about the impact of the global financial crisis.
Saudi's main stock index fell near the 10 percent limit on Monday and shed another 7 percent on Tuesday.
"Any objective analyst looking at the number of firms, especially the main ones, in the Saudi economy and the Saudi bourse cannot understand this major agitation that has happened with prices," Jasser said.
An economist at the central bank told Reuters on Tuesday that Saudi was having problems managing liquidity while controlling inflation at the same time and could reduce the benchmark lending rate if convinced that the monetary system was running out of cash.
The kingdom, which pegs its currency to the dollar, has not lowered the repurchase rate, its benchmark lending rate since February 2007. It stands at 5.5 percent.
Flush with liquidity from record oil receipts, the world's largest oil exporter has been cutting the reverse repurchase rate recently, instead of the repurchase rate, to avoid fuelling inflation as it tracks the US Federal Reserve cuts.
But the picture has changed as the central bank nearly doubled reserve requirements banks have to make over the past 11 months to mop up liquidity and avoid stoking inflation. (Reuters)
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