Liquidity tops $267bn in Saudi on back of monetary measures

Saudi Arabia has seen its domestic liquidity cross the SR1 trillion mark as a result of central bank measures over the past six months that have encouraged commercial banks to continue lending, it was reported on Sunday.

The Saudi Arabian Monetary Agency (SAMA) said the growth in liquidity was the result of steps it had taken between October 2008 and April 14 to strengthen commercial banks' ability to provide loans, the agency said in a statement.

Moves inlcuded a cut in the reverse repo rate by 25 basis points to 0.5 percent, which that took place in mid-April in a bid to realign the repo rate with short-dated market rates.

In response the Saudi stock market jumped over 7.83 percent last week with the all-share index closing 18.6 points higher on Saturday at 5,644.11 - the index is up by 17.51 percent so far this year.

“The measures adopted by SAMA led to liquidity enhancement that would encourage banks to resume financing productive projects,” SAMA said in its statement.

Experts quoted in local business daily Al Eqtisadiah agreed.

“This is the explanation for the large-scale rise in the Kingdom’s stock market,” the paper quoted analysts as saying, adding that a considerable chunk of the liquidity was likely to be directed toward the market.

Economist Abdul Wahab Abu Dahesh said SAMA’s decision to lower the reverse repo rate had helped to substantially increasing the availability of money in the local economy.

Banks’ non-statutory deposits with SAMA had also risen sharply since the intensification of the global financial crisis in the third quarter of last year, reaching SR74bn by the end of February, up from virtually nothing in October 2008, according to SAMBA Financial Group’s Economic Monitor for April.

Banks had reined in lending to the private sector, but year-on-year growth in lending remained strong, at around 17 percent, although it had slowed sharply over the past six months, the agency said.

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