Saudi market ‘reacting positively to liquidity injection measures’

The Saudi government’s recent “monetary stimulus” measures are expected to fuel broader economic activity in the Kingdom, according to analysts.
They were commenting on reports that Saudi money market rates appeared to be returning to more normal levels.
Analysts believe that Saudi Arabia's stock market index could also get a boost from news that the government has made a major amount of delayed payments to the private sector.

On Saturday, a senior construction industry executive told Arab News that the government had made a payment of SR40 billion that it owed to private sector companies, and would soon make more payments.

“This clearly represents a monetary stimulus. The reduced cost of borrowing should encourage lending and thereby broader economic activity. This is also likely reflective of the easing liquidity concerns in the economy,” a Bahrain-based Western analyst told Arab News.

His remarks came as Reuters reported that the National Commercial Bank (NCB) cut its quote for three-month money in the interbank market on Sunday. This is a signal that rates could fall further as a liquidity crunch in the banking system eases, the news agency added.

In a sign that rates could drop further, Saudi Arabia’s biggest bank quoted three-month SAIBOR at 2.10 percent on Sunday, down from the 2.15 percent which it had quoted throughout this month.

Commenting on the latest developments, John Sfakianakis, director of economics research at the Gulf Research Center in Riyadh, told Arab News: “Rates have been falling as liquidity has been rising. The market has been reacting very positively to the Saudi Arabian Monetary Agency’s liquidity injection measures. It should continue to be supportive as per the market requirement over the short term.”

An international banker familiar with the Saudi money market earlier told Reuters that rates appeared to be returning to more normal levels, though liquidity would not become loose again as long as oil prices stayed low. He suggested three-month SAIBOR (Saudi Interbank Offered Rate) might drop in coming weeks below the repo rate.

Reacting to reports about falling rates, James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, told Arab News: “This is a sign that liquidity pressures are continuing to ease. 

This reflects the government deposits in the banking system (made possible by the recent successful sovereign bond issue) as well as the increased contractor repayments made by the government.” 

But he added: “The liquidity situation may have improved, but we still see a recession next year given another cut to government spending.”
In a recent statement, Moody’s Investors Service said: “We expect that the decline in three-month SAIBOR, a gauge of domestic funding conditions and a benchmark for lending rates, will reduce banks’ funding costs.”

Saudi interbank offered rates soared this year, pressuring companies and banks seeking to raise funds.
Over the past year, the benchmark rate surged to 2.4 percent in October, its highest level since January 2009, from 0.9 percent a year earlier, amid a tightening liquidity environment, Moody’s noted. 

According to analysts, cited by Reuters, the need for the government to sell debt domestically has been reduced, for now at least, by the government's success in issuing $17.5 billion of bonds overseas last month in its first international bond sale.

A SAMA official said last week that the proceeds of the foreign bond sale had not yet been deposited in local banks. Bankers believe that if they are, that could provide a big boost to liquidity, Reuters added.

The government has also improved liquidity conditions in the banking sector by releasing payments of money that it owed to private sector companies.

Source: Arab News