Saudi raises interest rates

RIYADH / Reuters

Saudi Arabia’s central bank raised its two key interest rates by 0.25 percentage points in an apparent effort to prevent Saudi money rates from falling far below US rates, which could trigger capital outflows from the kingdom.
The central bank lifted its repo rate, at which it lends to commercial banks, to 2.25 percentage points and its reverse repo rate, at which commercial banks deposit money with the centralbank, to 1.75 percentage points.
The timing of the move was unusual. Normally, Saudi Arabia waits until the United States alters interest rates before making its own changes; this time, the Saudis acted almost a week before next Wednesday’s US Federal Reserve meeting, which is widely expected to hike US rates by 0.25 percentage point.
In a brief statement, the Saudi central bank said only that its decision was “consistent with monetary stability in the evolving domestic and international monetary conditions”.
The three-month Saudi interbank offered rate was 13 basis points below its US dollar equivalent — the lowest spread since mid-2009, when rates were distorted by the global
financial crisis.
It was the first time in several years that the central bank hiked its repo rate. In previous monetary tightenings since December 2015, it only raised the reverse repo, limiting upward pressure on money market rates.
Early this month, the central bank took another step that signalled it did not want a large, negative spread to open up with US rates: it annou-nced it would no longer offer repurchase agreements for seven-, 28- and 90-day periods.
The repos, introduced in 2016, were ways for the central bank to loosen money market liquidity by lending money to banks for relatively long periods. When it abolished the instruments, the central bank said it no longer needed them.