Saudi Arabia’s Central Bank Cuts Key Interest Rates

By Arif Sharif

Jan. 19 (Bloomberg) -- Saudi Arabia’s central bank cut its repurchase rate to 2 percent from 2.5 percent and the reverse repurchase rate to 0.75 percent from 1.5 percent to help boost economic growth in the biggest Arab economy.

The cuts, even though expected, are “aggressive” and will help reduce borrowing costs “substantially” for companies, John Sfakianakis, chief economist at Saudi British Bank, said in a phone interview from Riyadh today. Interbank interest rates should begin to come down by midday, he added.

“These measures should help to ensure that credit is available to genuine corporate demand at lower rates,” state-run Saudi Press Agency reported today, citing a statement from the Saudi Arabian Monetary Agency. “SAMA has been closely monitoring money market developments following its monetary measures taken since October 2008. Domestic money market rates have positively responded to monetary stimulus and the recent global easing in interbank rates.”

Economic growth in Saudi Arabia, the world’s biggest oil exporter, is expected to slow to 1.6 percent this year from 4.8 percent in 2008, according to the median estimate of eight economists polled by Bloomberg News. Inflation is expected to decline to 7.5 percent from 9.9 percent in 2008.

Saudi Arabia’s annual inflation eased to 9 percent in December from 9.5 percent in November as increases in rents and food prices slowed, the Saudi Press Agency reported today.

Housing rose 17.7 percent, down from 18.1 percent in November, while food and beverages prices increased 11.3 percent, less than the 13.5 percent in the previous month, the Riyadh-based news agency reported, citing the Central Department of Statistics and Information.

Saudi British Bank is 40 percent owned by HSBC Holdings Plc and the country’s third-biggest lender by market value.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net