Saudi money supply growth eases to 21.3%

Annual growth in Saudi Arabian money supply, an indicator of future inflation, eased slightly to 21.3 per cent in June from 21.6 per cent in May, central bank data showed yesterday.

M3, the broadest measure of money circulating in the Saudi economy, hit SAR860.7 billion (Dh843bn) at the end of June compared with SAR709.3bn a year earlier, the Saudi Arabian Monetary Agency (Sama) said in a report on its website.

Demand deposits grew an annual 32.1 per cent in June to SAR351.55bn versus an annual 30.6 per cent rise in May, the data showed.

Narrow money, or M1, increased as a result to SAR429.15bn in June up from SAR333.11bn a year earlier. Inflation in the world's largest oil exporter, which pegs its riyal currency to the dollar, hit 10.4 per cent in May as price rises accelerate across the region.

Dollar pegs in most Gulf Arab states have compelled regional central banks to track seven United States interest rate cuts since September 18, though their economies are booming on a near-seven-fold rise in oil prices since 2002.

In an effort to curb lending growth, Sama has raised bank reserve requirements four times since November to 13 per cent from seven per cent. And in May it hiked reserve requirements banks have to make for time and savings deposits to four per cent from two per cent.

To defend its dollar peg, the Kingdom has also tried to offset the impact of inflation on its people by introducing cost-of-living allowances for state employees, slashing import duties and boosting subsidies.

The central bank's total net foreign assets touched SAR1.41 trillion at the end of June compared with SAR875.25bn a year earlier, it said.