Saudi bank raises reserve ratio - Emirates24|7

Saudi bank raises reserve ratio


Saudi Arabia has raised bank reserve requirements to 12 per cent from 10 per cent to stem a surge in inflation, the third move of its kind since November, traders said on Monday.

"The increase took effect on April 1," one trader said on condition of anonymity, because the Saudi central bank bans banks from talking to the media about its monetary policy memos.

The move forces banks to keep more money as reserves, slowing the growth of money supply.

The Saudi Arabian Monetary Agency (SAMA) raised the reserve ratio to 9 per cent from 7 per cent in November and increased it again in January to 10 per cent.

"The memo did not explain the move, as usual," a treasurer at a local bank said. "But obviously they are very concerned about the relentless rise in money supply, in spite of steps taken in the past to slow it down."

Officials at SAMA could not be reached immediately for comment.

Money supply grew 23.9 per cent year-on-year in January, its biggest rise in at least four years, versus annual growth of 19.6 per cent in December.

April's reserve requirement increase took effect the same day as the government slashed import tariffs on 180 basic goods after inflation in the world's largest oil exporter almost doubled in the six months to reach 8.7 per cent in February, a 27-year peak.

Saudi Arabia has said it is committed to pegging its riyal currency to the dollar, even though the US currency's persistent decline is driving up import costs.

Saudi Arabia, along with the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman, is preparing for monetary union as early as 2010.

Inflation is accelerating across the world's biggest crude oil-exporting region as their economies surge due to a five-fold rise in oil prices in the last six years, which is driving state investment in infrastructure and real estate. (Reuters)