Saudi Arabia Cuts Repo Rate, Reduces Cash Reserve Requirement

By Matthew Brown

Oct. 12 (Bloomberg) -- Saudi Arabia reduced its benchmark repo rate by 0.5 percentage point, and lowered the amount of money commercial banks have to hold as reserves to 10 percent from 13 percent, as it seeks to address liquidity shortages.

Saudi Arabia cut the repo rate to 5 percent and kept the reverse repo on hold at 2 percent, said John Sfakianakis, chief economist at Saudi British Bank, citing communication from the Saudi Arabian Monetary Agency, the country's central bank. Saudi Arabia has followed the last seven U.S. interest rate cuts with reductions in the reverse repo.

Reducing the repo and the reserve requirement ``is a liquidity booster,'' said Sfakianakis in a telephone interview from Riyadh today. ``Doing both simultaneously shows that SAMA is on top of the liquidity issue.''


Saudi Arabia follows the United Arab Emirates and Bahrain in reducing interest rates following a cut by the U.S. Federal Reserve Oct. 8, in coordination with five other central banks from around the world. Kuwait slashed key interest rates by as much as 1.25 percentage point before the Fed moved.

No Saudi bank is yet to use the repo window, SAMA Deputy Governor Mohamed al-Jasser told Al Arabiya television channel on Oct. 8. Local banks have access to as much as 150 billion riyals ($39.8 billion) from SAMA in the form of a repo agreement, al-Jasser said.

To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net