Saudi inflation decline expected to continue

Saudi Arabia's inflation is expected to keep falling after it reached a two-year low of 4.2 per cent in July, official media quoted the central bank governor as saying.

The sharp fluctuations during the first half of 2009 in the price of oil, the kingdom's economic mainstay, must prompt the it to diversify its revenue sources further, the official SPA news agency quoted Muhammad Al Jasser, Governor of the Saudi Arabian Monetary Agency (Sama), as saying.

"It is a must to continue diversifying the sources of revenue and reduce reliance on oil ... by further granting the private sector a bigger role in the national economy," said Jasser, citing the fluctuations in the price of oil, now trading at about half its record $147 (Dh539.93) price per barrel of July 2008. He made the remarks as he presented Sama's annual report to King Abdullah on Sunday, SPA reported.

Annual inflation in Saudi Arabia fell to 4.2 per cent in July from a record 11.1 per cent a year earlier due mainly to a slowdown in the rise of home rents and food prices."It is expected that this [inflation] decline will continue, which would create better chances for growth and financial stability," said Jasser.

The drop has coincided with a dramatic slowdown in lending, especially to the private sector amid the global economic slowdown and concerns over the solvency of two major private conglomerates. Jasser said lending to the private sector rose 27.1 per cent in 2008. At the end of July, the rate fell to 3.6 per cent.

The global financial crisis has had a "limited impact on the Saudi economy and Saudi banks have not been tangibly affected by it thanks to Sama's conservative policy in supervising and controlling financial institutions", said Jasser.

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