Kingdom’s central bank has no plans to invest in distressed assets, gold, says al-Jasser
Saudi Arabia's central bank is not interested in buying
distressed or speculative assets such as troubled European debt and gold and
the OPEC member's banks are well positioned to withstand the euro zone crisis,
its head said on Saturday.
The world's No. 1 oil exporter like most of its Gulf Arab
neighbours is a major holder of dollar assets as its riyal currency is pegged
to the greenback and crude accounts for 85 percent of its budget revenue.
Asked if the Saudi Arabian Monetary Agency had considered
buying European sovereign bonds such as Italian ones, Governor Muhammad
al-Jasser said: "We do not buy specific bonds at all. We have not done it.
"We always have a much more integrated reserve
investment strategy which looks at it in a continuous and dynamic way that
values security, safety and liquidity and therefore we do not look
opportunistically at distressed assets or special assets that come up one way
or the other," Jasser said after a meeting of the Group of 20 countries in
The central bank of Saudi Arabia, which is the only Middle
Eastern member of the G20 group of developed and emerging economies, rarely comments
on its reserve strategy.
Gold, which has tumbled from a record high of above $1,920
an ounce, is another asset of little interest to the Saudi central bank due to
its volatility, Jasser said.
"We have gold in our reserves but we have not bought
and we have not sold it in a very long time. It has become a very speculative
asset and we do not get into any speculative assets.”
Asked whether the central bank was going to stick to this
strategy, Jasser said: "Yes".
Boosted by robust oil prices of above $100 per barrel this
year, the Saudi central bank's net foreign asset reserves have climbed steadily
to a record high of SR1.879 trillion ($500bn) in August.
Gold reserves have been unchanged at SR1.556bn since 2008,
the central bank's data show.
Jasser also said US Treasuries continued to be "an
important safe haven and major asset" in global financial markets.
"62 percent of global reserves are still in US assets.
It is safe to say they are there to stay for a while," he said.
A downgrade of the United States' top-notch 'AAA' credit
rating by Standard & Poor's in August shocked the global markets but had no
adverse impact on its bonds.
Article continues on
Jasser also said banks in the world's top Arab economy were
well positioned to deal with any upcoming shocks as well as the European debt
crisis. Capital adequacy for banks was north of 17 percent with most of it Tier
"That's very robust. Second, our banks sources of
funding are predominantly domestic from domestic deposits which is a reasonably
stable source of funding," he said, standing in front of the G20 meeting
venue at a sprawling complex of Ministry of Economy, Finance and Industry.
"Most of the lending is domestic also so the exposure
to the outside is very limited and therefore we are very confident that our
banking system is well positioned to withstand any stress emanating from what's
happening in Europe," he said.
Robust lending growth to the private sector of more than
nine percent in the first 10 months of the year indicated strong demand, while
inflation has stabilised in a tight range of 4.6-4.9 percent and should begin
trending down, Jasser said.
"Our economy is doing very well and is expected to
continue next year. This year, I have forecast that we will have at least five
percent growth and probably something close to that next year," he said.
Analysts polled in September expected the $447bn Saudi
economy to expand by 6.5 percent this year and 4.5 percent in 2012 helped by an
estimated $130bn boost in social spending, or nearly 30 percent of GDP.
Jasser said interest rates settings were appropriate at the
moment with no signs of inflation coming from monetary impetus.
"I still think it is an appropriate setting now until
we see inflation due to monetary impetus," he said.
Asked whether that meant credit growth needed to be in
double digits, Jasser said: "Something like that. And it also depends on
credit whether it is going to productive activities and leading to growth one
would not worry too much about it, if it is going to finance speculative
activities one has to worry."
The Saudi central bank has been keeping its repo rate at 2
percent since January 2009 and reverse repo rate at 0.25 percent since June
2009. It needs to hold its key rates near US benchmarks to avoid excessive
pressures on its dollar peg.