Saudi holds repo to stem money supply growth
Dubai, February 24, 2008
The Saudi central bank is unlikely to cut its repurchase rate, the benchmark lending rate, in response to further easing by the US Federal Reserve as it seeks to stem money supply growth, the vice governor said.
With its riyal pegged to the dollar, the world's largest oil exporter has been striving to track US monetary policy as the Federal Reserve slashes interest rates to help ward off recession while the Saudi economy surges.
'Our monetary policy will continue to address our own domestic circumstances without undermining the credibility of our peg,' Muhammed Al Jasser, vice governor of the Saudi Arabian Monetary Agency, told Reuters in an interview.
As the Fed reduced interest rates by 225 basis points to 3 percent since September 18, Saudi Arabia has followed by cutting only its reverse repurchase rate, which guides deposit rates, to the same level in order to deter bets on an appreciation of the riyal.
It has kept the benchmark repurchase rate, at which banks borrow from the central bank, steady at 5.5 per cent, in order to prevent lower borrowing costs from stoking inflation, Al Jasser said.
'The repo rate, which is equivalent to the U.S. Fed benchmark, has not gone down. The signal is that there will be no infusion of liquidity through the central bank to the economy,' Al Jasser said.
Wall Street dealers unanimously expect the Fed to cut interest rates again by at least 25 basis points at its meeting in March, a Reuters poll showed this month.
Inflation in Saudi Arabia hit 7 per cent in January, its highest in more than 25 years, pushing real interest rates - official lending rates minus inflation - into negative territory.-Reuters