The Saudi Arabian Monetary Agency, as the central bank is known, decided to give banks about 20 billion riyals ($5.3 billion) in the form of time deposits “on behalf of government entities”, introducing seven-day and 28-day repurchase agreements, as part of its “supportive monetary policy”, reported Bloomberg
The Saudi Arabia central bank ‘s step came to support lenders in the Arab world’s biggest economy as they grapple with the effects of low oil prices.
According to Bloomberg, The plunge in oil prices over the past two years forced the government to draw down on its deposits in the banking system, squeezing domestic liquidity. That’s pushed up the three-month Saudi Interbank Offered Rate, a key benchmark used for pricing loans, to the highest level since 2009.
The announcement comes as the world’s biggest oil exporter prepares to sell its first international bonds to finance a budget deficit that the International Monetary Fund expects to reach about 13 percent of economic output this year. The economy will likely expand 1.1 percent in 2016, according to a Bloomberg survey, the slowest pace since 2009.
“They don’t want to come to the market with a Eurobond when these concerns aren’t addressed,” said Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG. “It will show investors that the government is committed to support the banking system.”
The Saudi index for banking shares has declined 17.6 percent this year, compared with a 14.4 percent drop for the benchmark Tadawul All Share Index.