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Saudi hikes benchmark interest rates, credit positive for banks - Moody’s

Saudi hikes benchmark interest rates, credit positive for banks - Moody’s
Saudi hikes benchmark interest rates, credit positive for banks - Moody’s

Riyadh – Mubasher: The Saudi Arabian Monetary Authority (SAMA) announced raising two key interest rates by 25 basis points.

The Saudi central bank hiked repo rate to 2.25%, the first rise since 2009, while it raised its reverse repo rate to 1.75%.

This procedure came after the kingdom’s money rates fell below the US rates during the previous period, Moody’s said in a report.

These hikes are credit positive for lenders operating in the oil-rich nation since they will ban capital outflows of Saudi investors and depositors, in addition to positively reflecting the Saudi banking sector’s stable liquidity conditions, the report showed.

“Saudi Arabia’s improving liquidity and funding conditions since 2017 have driven the Saudi Arabian Interbank Offered Rate’s (SAIBOR) spread against US dollar London Interbank Offered Rate (LIBOR) to its lowest level since 2009, even reaching negative spreads in recent weeks (see exhibit), despite a number of rate hikes by the US Federal Reserve,” the international ratings agency noted.

On Thursday, 22 March, the three-month Saudi rate was 13 basis points down from its US dollar equivalent.

“SAMA’s increases to its repo and reverse repo rates, which follow its decision to end the availability of seven-, 28- and 90-day repurchase agreement maturities, will guard Saudi banks from potential capital outflows," the New York-based business and financial services company indicated.

Moody’s forecast that SAMA’s decisions will not put further financing pressure on banks, amid expectations that lending growth will be moderate during 2018.