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Saudi unlikely to change repo rate |
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06.29.2009 |
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DUBAI: Saudi Arabia is unlikely to change its benchmark lending rate in the third quarter, a Reuters poll showed, after its central bank sought to boost lending by halving the rate it pays to commercial banks for deposits.
The world’s top oil exporter’s economy is expected to contract 0.2 percent in 2009 at constant prices compared to 4.2 percent growth last year, according to median forecasts of 14 economists and analysts.
The Saudi Arabian Monetary Authority (SAMA) on June 16 lowered to 0.25 percent its reverse repo rate, prompting some analysts to expect a follow-on cut to its benchmark repo rate, which has remained unchanged at 2 percent since January 19.
Four of those polled said they expected the Gulf Arab state to change its repo rate before the end of this year, with two specifying a cut, and a third an increase. The fourth economist polled declined to give a figure. Another four saw a change coming either in 2010 or 2011, with three predicting an increase to the benchmark, a fourth declining to give a figure.
“Given that SAMA has been cutting its reverse repo rate while keeping the repo rate on hold is an indication that it could be ensuring it has further ammunition up its sleeves in case credit growth shows more signs of weakness”, Mohamed Rahmy, an analyst at EFG-Hermes who also participated in the June 23-25 poll, said. For full poll results, click on [ID:LS887302]
Further cuts in the lending rate were unlikely to affect the widespread risk aversion of banks and reluctance to lend, Rahmy said, as liquidity constraints were no longer the main factor in the deceleration in credit growth.
Lending by Saudi banks to the private sector fell for a third straight month in May amid growing concerns over the solvency of some family-owned firms and the local lenders’ exposure to bad debts due partly to the global economic crisis.
Forecasts for the size of the next move to Saudi Arabia’s repo rate ranged from a 50 basis point cut to a 75 basis point increase.
In 2010, the oil-reliant economy would rebound, expanding 3.3 percent, the median forecast showed, unchanged from expectations of economists polled by Reuters in March. But the outlook for this year has darkened considerably: From a median forecast of 0.3 percent growth in a March poll, surveyed economists now expect a 0.2 percent contraction in real GDP, although this is still better than a International Monetary Fund’s projection of a 0.9 percent contraction in 2009.
“This year is always going to be difficult,” said Paul Gamble, an economist at Jadwa Investment who took part in the June 23-24 poll. “On the upside it’s pretty clear the government is going ahead with its spending commitments. But on the downside, imports and bank lending to the private sector are down.”
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Source:www.thepeninsulaqatar.com |
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