The Saudi Central Bank (SAMA) is expected to lower its official repo rate and reverse repo rates by a cumulative 100 basis points by the end of 2026, mirroring the US Federal Reserve’s expected move, according to Riyad Capital.

The Fed is projected to stay on a measured rate cut trajectory and forecast overall four rate cuts corresponding to 100 basis points.

“Based on this baseline scenario, we expect the three-month SAIBOR rate to decline to 4.35% by the end of 2026,” Riyad Capital said in a report.

The kingdom’s economic growth is expected to accelerate in 2025 and 2026, supported by robust non-oil activities and an expected rebound in oil activities.

Non-oil GDP is forecast to expand by 4.6% in 2025 and 4.3% in 2026, marking six straight years of growth exceeding 4%. Overall GDP growth is projected at 4.3% in 2025, following 2% in 2024, with 2026 expected to maintain a similar pace at 4.2%.

Inflation is anticipated to remain subdued at an annual average of 2.3% for 2025 and 2.2% for 2026, the report said.

Riyad Capital foresees the government pursuing fiscal consolidation, with spending projected to be about 4% in 2025 below last year. Spending is predicted to increase moderately by 3% next year.

As a result, the fiscal deficit is forecast at -4.3% of GDP in 2025 and -3.4% in 2026, the brokerage said.

(Editing by Seban Scaria seban.scaria@lseg.com)