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Saudis cut rate to help credit rise
By Tarek El-Tabalwy |
June 17, 2009, Wednesday
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Print Edition
Print Edition
SAUDI Arabia's central bank yesterday cut its reverse repurchase rate by half, as it looks to boost credit growth at a time when domestic banks have tightened lending.
The Saudi Arabian Monetary Agency said it cut the reverse repurchase rate by 25 basis points to 0.25 percent, the second such reduction in a year in an effort to "normalize money market conditions against the backdrop of stable macroeconomic activity."
SAMA's step, which takes effect immediately, is the latest by the government of the Arab world's largest economy to stimulate bank lending that has so far come slowly despite earlier economic stimulus efforts.
The cut is the second this year by SAMA, which usually follows the United States Federal Reserves' lead in reducing interest rates. In April, it cut the rate to 50 basis points from 75 basis points.
But the unilateral nature of the move - the Fed has left its rate unchanged since December - highlights that earlier efforts have not yielded the kinds of results expected.
"The banks are in a risk averse environment. They continue to lend less to the private sector, and they continue to place more with the central bank," said John Sfakianakis, chief economist with SABB, the HSBC Holdings PLC affiliate formerly known as Saudi British Bank. "At least from a monetary perspective, they're doing what needs to be done to keep the money away from the central bank."
Although money supply growth has been at over 3 percent in the past two quarters, total bank credit growth has fallen since the third quarter of 2008 and was negative in the first quarter of this year.
The Saudi Arabian Monetary Agency said it cut the reverse repurchase rate by 25 basis points to 0.25 percent, the second such reduction in a year in an effort to "normalize money market conditions against the backdrop of stable macroeconomic activity."
SAMA's step, which takes effect immediately, is the latest by the government of the Arab world's largest economy to stimulate bank lending that has so far come slowly despite earlier economic stimulus efforts.
The cut is the second this year by SAMA, which usually follows the United States Federal Reserves' lead in reducing interest rates. In April, it cut the rate to 50 basis points from 75 basis points.
But the unilateral nature of the move - the Fed has left its rate unchanged since December - highlights that earlier efforts have not yielded the kinds of results expected.
"The banks are in a risk averse environment. They continue to lend less to the private sector, and they continue to place more with the central bank," said John Sfakianakis, chief economist with SABB, the HSBC Holdings PLC affiliate formerly known as Saudi British Bank. "At least from a monetary perspective, they're doing what needs to be done to keep the money away from the central bank."
Although money supply growth has been at over 3 percent in the past two quarters, total bank credit growth has fallen since the third quarter of 2008 and was negative in the first quarter of this year.
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