Saudi money supply growth up in October

Annual growth in Saudi Arabia's money supply accelerated to 20.2 per cent in October this year from 19.4 per cent in September, central bank data showed yesterday, after the Kingdom boosted liquidity to keep the economy growing.

M3, the broadest measure of money circulating in the economy, rose to SR901.09 billion (Dh883.8bn) by end-October compared with SR749.78bn a year earlier, the Saudi Arabian Monetary Agency (Sama) said in a monthly report.

September money supply growth was the lowest since April. Annual growth in money supply was 21.8 per cent in August.

"It was expected," said John Sfakianakis, Chief Economist at HSBC's Saudi affiliate. "They [Sama] injected cash and cut both the repo rate and reserve requirements since the banks had credit capacity limitations. Sama's primary concern now is growth." On October 12, Sama reduced the repo rate by 50 basis points to five per cent and also lowered reserve requirements to 10 per cent from 13 per cent, a move that was expected to release about SR10bn to commercial banks.

Nine days later Sama poured $3bn in deposits into the banking system to ease liquidity pressures. It was Sama's first injection of US dollars in a decade.

Money supply growth is an indicator of future inflation, which in Saudi eased to 10.35 per cent in September from 10.9 per cent in August.

"For money supply growth to accelerate in October does not necessarily mean that inflation will rise for that month because import costs are declining quite fast," Sfakianakis said.

But money supply growth could very well accelerate further in November, he said, after Sama cut the repo rate twice after October 12 to three per cent and cut reserve requirements to seven per cent.

The acceleration in money supply's growth in October stemmed mainly from residents' foreign currency deposits and banks repo transactions with private parties. These rose almost eight per cent to SR155.53bn.

Demand deposits added 0.65 per cent in October from the month earlier to SR335.78bn while time and savings deposits rose 0.43 percent to SR327.9bn, the data showed.

The central bank's net foreign assets stood at SR1.65 trillion at the end of October, while in September they were SR1.62trn.

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