Saudi Arabia, which pegs its currency to the dollar, cut its key interest rate by a quarter of a percentage point to 2 percent, following a reduction by the U.S. Federal Reserve.
The central bank left its benchmark repo rate unchanged and raised banks' reserves requirement with the aim of slowing credit growth, said John Sfakianakis, chief economist at Saudi British Bank. The Saudi Arabian Monetary Agency, the central bank, does not communicate rate decisions directly to the media.
"Increasing the reserves requirements for banks means that they have to keep more money in their vaults,'' Sfakianakis said by telephone from Riyadh today. "So banks have less money to lend, which is an attempt to curb inflation.''
Inflation is running close to 10 percent in Saudi Arabia after the U.S. currency lost 13 percent of its value against the euro in the last 12 months, stoking record inflation in the region. Central banks that fix their currencies to the dollar need to follow U.S. monetary policy to prevent currency inflows or outflows from upsetting the peg. The Saudi riyal jumped to a 20-year high against the dollar in September after the Saudi Arabian Monetary Agency chose not to follow a Fed rate cut.
Saudi Arabia reduced the so-called reverse repo rate by 25 basis points, curtailing any speculation about its commitment to the dollar after the United Arab Emirates, Bahrain and Qatar cut their key rates May 1. The Fed lowered its benchmark interest rate April 30 to 2 percent, its seventh cut since September.
The kingdom left its benchmark repo rate unchanged at 5.5 percent, raised banks' reserves requirement by one percentage point to 13 percent, and doubled the rate on the reserve requirements of time deposits to 4 percent from 2 percent, the banker said.
The central bank left its benchmark repo rate unchanged and raised banks' reserves requirement with the aim of slowing credit growth, said John Sfakianakis, chief economist at Saudi British Bank. The Saudi Arabian Monetary Agency, the central bank, does not communicate rate decisions directly to the media.
"Increasing the reserves requirements for banks means that they have to keep more money in their vaults,'' Sfakianakis said by telephone from Riyadh today. "So banks have less money to lend, which is an attempt to curb inflation.''
Inflation is running close to 10 percent in Saudi Arabia after the U.S. currency lost 13 percent of its value against the euro in the last 12 months, stoking record inflation in the region. Central banks that fix their currencies to the dollar need to follow U.S. monetary policy to prevent currency inflows or outflows from upsetting the peg. The Saudi riyal jumped to a 20-year high against the dollar in September after the Saudi Arabian Monetary Agency chose not to follow a Fed rate cut.
Saudi Arabia reduced the so-called reverse repo rate by 25 basis points, curtailing any speculation about its commitment to the dollar after the United Arab Emirates, Bahrain and Qatar cut their key rates May 1. The Fed lowered its benchmark interest rate April 30 to 2 percent, its seventh cut since September.
The kingdom left its benchmark repo rate unchanged at 5.5 percent, raised banks' reserves requirement by one percentage point to 13 percent, and doubled the rate on the reserve requirements of time deposits to 4 percent from 2 percent, the banker said.
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