Saudi Money Supply Surges To 20-Month High, BSF Says
Saudi Arabian money supply growth soared to a 20-month high of 13.8% in March, as the government carried out planned handouts of approximately SR53bn ($14.1bn) in bonuses that have the potential to fuel short term inflationary pressures, Banque Saudi Fransi (BSF) said in its latest Monetary Watch report. These handouts, the report notes, came as part of a “block of initiatives” announced by King 'Abd Allah, intended to support the country’s citizens. Coming to a total cost of around SR435bn ($129.3bn), these initiatives are said to include plans to raise wages, pay out one-off bonuses, introduce a new framework of unemployment benefits, build new homes and create jobs for the Saudi people.
The implications for both the kingdom’s money supply and deposit growth were apparent, BSF Chief Economist John Sfakianakis noted. Broad money supply (M3) was estimated to have increased 13.8% year on year to SR1.15 trillion ($306.6bn) in March, while growth in M2 – including demand deposits, currency outside banks and time savings deposits – was seen to rise to 14.9%, the highest growth rate seen in the country since June 2009. Consequently, BSF notes that the kingdom’s monetary base – including the highly liquid currency held both in banks and by the public – increased by 24.7% to SR276.1bn ($73.6bn), bringing with it a fall in the country’s money multiplier from 4.52 in February to 4.16 in March.
“One short term consequence of government payouts and salary hikes this year should be a rise in inflation,” Dr Sfakianakis observes, as household consumption begins to pick up and consumers become more likely to make the so called “big ticket” purchases such as cars or electronic appliances. Accordingly, after falling to a 10-month low of 4.9% in February, BSF anticipates headline inflation will rise once more as prices gain momentum over the coming months due to steep rents, higher global food prices, money supply growth and the weak US dollar. For the year, inflation is expected to average 5.6%, up marginally from 5.1% last year.
Bank lending to the private sector meanwhile continued to exhibit limited rates of growth, while private bank credit – excluding investments in securities – was estimated to have risen 6.5% to SR763.93bn ($203.6bn) in March, representing the fastest growing growth rate since May 2009. This, in turn dragged the loan-to-deposit ratio down to 76% from 79% in the previous month.
Further to this, the report took note of the fact that the government’s huge spending hike this year had been supported by the recent high oil price environment, in which US oil prices were seen to average around $103.40/B – up 16% from December 2010. The Saudi Arabian Monetary Agency’s (SAMA)’s net foreign assets were also estimated to have grown by 3.8% to a record level of SR1.73 trillion ($469.98) in the month to March, marking a 10.9% rise from the previous year, as the central bank looked to invest in both long term, low risk foreign securities and deposited funds abroad.
SAMA Foreign Assets Soar To Record As Oil Prices Rise
