Saudi Arabia to inject $5.3 billion in commercial banks to fillip financial stability

Saudi Arabia to inject fund at Commerical bank to fillip financial stability : SAMA, Saudi Arabia’s central bank has decided to inject about 20 billion riyals (near $5.3 billion) at commercial banks and introduce two new money market instruments to tackle with surging market interest rates caused by low oil prices.

Key highlights :

  • Fund to be injected in form of Time Deposit
  • 7-day, 28-days REPO Agreements Introduced
    Saudi Arabia’s central bank stepped up efforts to support lenders in the Arab world’s biggest economy as they grapple with the effects of low oil prices
    Saudi Arabia stepped up efforts to support lenders in the Arab world’s biggest economy as they grapple with the effects of low oil prices

Saudi Arabian Monetary Agency, known as Central Bank of Saudi Arabia is giving banks about 20 billion riyals ($5.3 billion) of time deposits “on behalf of government entities.” It’s also introducing seven-day and 28-day repurchase agreements, as part of its “supportive monetary policy.”

Two new money market instruments introduced

The central bank of Saudi Arabia has introduced a 7 day and 28 day repurchase agreements to lend money to banks when needed.

Earlier, the central bank has only used repo agreements with one day maturities.

Government revenue and volume of petrodollars flowing into Saudi banking system slashed because of low global oil prices.

The continuously growing total deposit at commercial bank were down 3.3 percent in June from a year earlier.

This has strained liquidity in the banking system and pushed up interbank money rates. The one-year Saudi interbank offered rate has jumped by more than 1.5 percentage points in the past 15 months. 

That in turn threatens banks’ ability to lend to the private sector at affordable rates, a key consideration as the government tries to limit damage to the economy from cheap oil, and raises borrowing costs for the government, which is selling bonds to the banks every month to finance a big budget deficit. 

Source : Economic Times

Leave a Reply

Your email address will not be published. Required fields are marked *