Many threats affecting the largest Arab economy
Friday, 08 14 2015, Category: Economy, Country: Saudi Arabia
Many fears began to hover about the Saudi banking system and its continuous liquidity decline. Indeed, the largest Arab economy has pushed its own currency to fall to its lowest level versus the dollar in more than six years in the futures market; and the reason behind that was a rare issuance of bonds worth SR 20 billion.
Futures (riyal versus dollar) jumped by about 144 points for the year to the highest level since December 2008, while the trading ranged earlier this year between zero and 100 points.
According to traders, the futures have moved up in response to a jump in the interest rate of the Saudi riyal in the money market after the government sold Riyal bonds to local commercial banks this week, with maturities ranging between 5, 7 and 10 years in order to help cover the huge budget deficit caused by the decrease in oil prices.
This bonds’ issuance has pushed the riyal futures for two years in the interbank market to rise by 1.53% this week from about 1.05% six weeks ago.
Some bankers also expect Saudi Arabia to sell more bonds, worth 20 billion riyals a month probably, until the end of this year and possibly next year to cover the deficit resulting from the decline in oil prices; which analysts expect to reach between 130 and 150 billion dollars during the current year.
This step will have direct effects on the Saudi banking system; as it is expected to contribute to the absorption of the banks’ inactive liquidity. This will lead to the strengthening of the banking system’s profits over the long term, particularly in the presence of indicators confirming the government's ability to meet its obligations.
Source: CNBC Arabia