Saudi Arabia is adopting a monetary policy that is more stable than that of advanced economies given its massive local currency reserves, the Gulf Kingdom’s largest bank has said.
National Commercial Bank (NCB) said a surge in foreign assets because of strong oil prices has turned Saudi Arabia into a major net creditor with the world’s highest foreign reserves after China and Japan.
“It is no wonder these days that monetary policy in Saudi Arabia is exhibiting a high degree of stability and predictability compared to advanced economies that are still deliberating over another round of quantitative easing in a fiscally tight environment,” NCB said in a study sent to Emirates 24|7.
“Being a net creditor with the highest foreign reserves after China and Japan, and having all debt denominated in local currency do justify the no-brainer monetary policy undertaken domestically.”
It said that the Saudi Arabian Monetary Agency (SAMA), and contrary to other central banks that have their hands full on a couple of fronts, is mainly concerned these days with price stability and money supply dynamics.
Given that a large portion of Saudi Government Development Bonds (SGDBs) are nearing maturity, SAMA has continued to preempt any potential inflationary pressure from such influx of liquidity by leaning further on the usage of T-bills, a policy that have been adopted since 2005 to reduce debt service and avoid additional liquidity from hitting the market, the report said.
Its figures showed that by the end of August, the volume of SGDBs has declined by around 19 per cent to SR61.5 billion while the volume of T-bills surged by 45 per cent to nearly SR113.9 billion, reflecting the proactive open market operations conducted till date.
“Using one tool and having one objective might look like nothing much relative to the myriad unconventional tools used by central banks these days, but we do believe that policy makers in the rich world could do anything to be in the Kingdom’s shoes, these days boring is good.”