Thursday, March 15, 2018

Saudi Arabia raises repo, reverse repo rates 25 bps

      Saudi Arabia's central bank raised its two benchmark interest rates by 25 basis points with immediate effect, saying in a short statement this move was "consistent for monetary stability in the evolving domestic and international monetary conditions."
      The rate hike by the Saudi Arabian Monetary Agency (SAMA) comes the week after it stopped offering repurchase agreements for 7, 28 and 90-day terms after Saudi money rates fell below U.S. rates for the first time in nine years.
      Saudi Arabia pegs its riyal to the U.S. dollar and Saudi rates below U.S. rates could trigger capital flows.
     SAMA's rate hikes comes a week before the U.S. Federal Reserve's meeting on March 21 when it is expected to raise its policy rate by 25 basis points.
      SAMA raised its repo rate by 25 percentage points to 2.25 percent and the reverse repo rate to 1.75 percent.
      The repo rate had been maintained at 2.0 percent since 2009 while SAMA has raised the reverse repo rate six times from 0.25 percent since December 2015, with the previous five hikes mirroring the Fed's rate hikes.
      The repo arrangements that were scrapped on March 5 were used by SAMA to lend short-term money to banks, and introduced in late 2016 when the Saudi banking system faced a liquidity squeeze from low oil prices.



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