The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
RIYADH / Reuters
Saudi Arabia’s central bank said it would no longer offer repurchase agreements for seven-, 28- and 90-day periods, after short-term Saudi money market rates fell below US rates for the first time in nine years.
In a brief statement, the Saudi Arabian Monetary Agency said it no longer needed to use the instruments and aimed to preserve monetary stability. The central bank’s decision may indicate that it does not want a steep decline in Saudi rates relative to US rates to continue.
The three-month Saudi interbank offered rate was 10 basis points below its US dollar equivalent — the lowest spread since mid-2009, when rates were distorted by the global financial crisis. At the end of 2016, the Saudi rate was 104 bps above the US rate.
A negative spread could increase pressure for capital outflows from Saudi Arabia, which authorities are keen to avoid as they seek to fund domestic investment projects.
The repos were a way for the central bank to lend short-term money to banks.
When the repos were introduced in late 2016, the Saudi banking system faced a liquidity squeeze due to low oil prices, and authorities were battling to prevent rates from going too high.
But in recent months, liquidity has improved dramatically and money rates have come down because of austerity measures which have reduced the state budget deficit.
Saudi Arabia announced last week that it was expanding a $10 billion international loan refinancing to $16 billion.
The central bank will keep its option of using one-day repos, which it has employed in the past to handle any sudden shortages of liquidity at individual banks.