JEDDAH, 4 December 2007 — Saudi Arabia’s money supply growth accelerated 21.11 percent in October to a near three-year high, Saudi Arabian Monetary Agency (SAMA) data showed yesterday. M3, the broadest measure of money circulating in the Saudi economy, rose to SR749.78 billion ($199.9 billion) at the end of October, compared with SR619.06 billion a year earlier, the data showed. Saudi Arabia recorded gradual increases in its M3 from SR340.19 billion in 2001, SRSR390.43 billion in 2002, SR496.09 billion in 2004 and SR660.58 billion in 2006.
Demand deposits —funds that can be drawn upon instantly —grew 26.8 percent to SR286.66 billion, and time and savings deposits from 27.6 percent to SR273.4 billion. M3 climbed 19.4 percent in September and 21.5 percent in July, the fastest pace since November 2004. The central bank’s net foreign assets rose almost 28 percent to SR1.02 trillion in the year to Oct. 31.
SABB chief economist Dr. John Sfakianakis said, “The growth in money supply we are seeing in the economy should not be a surprise. High money supply is linked to the economic boom and high oil prices, which is a GCC-wide phenomenon, not merely a Saudi one. M2 money supply growth is rising since 2000 and accelerated very rapidly in 2004 and even more so in 2005 and 2006.”
Sfakianakis said, “High money supply can lead to inflation but this is not the whole story. The causes of inflation are linked to a rising money supply but one should also account for the role of real demand in the local economy. Look around at the sectors of the economy and take a look at the demand for goods from transport equipment to trucks and services, site engineers and architects and you will soon realize that demand at the moment is outstripping supply.”
Addressing the issue of high money supply in a pegged regime is a challenge that has to be constantly tackled, he said, “We have to wait and see how money supply will react to SAMA’s decision in early November of this year to increase the reserve requirements on demand deposits to 9 percent from 7 percent.”
Consolidated balance sheet of commercial banks —assets grew steadily from SR472.43 billion in 2001 to SR508.24 billion in 2002, SR545.21 billion in 2003, SR655.38 billion in 2004, SR759.07 billion in 2005 and SR861.09 billion at the end of 2006.
According to the SAMA statistics, currency outside banks increased to SR70.07 billion at the end of October as compared to SR69.10 billion in September. Currency outside banks was at SR49.20 billion in 2001, SR60.13 billion in 2004 and SR69.32 billion in 2006.
Currency outside SAMA was at SR81.54 billion at the end of 2006 as compared to SR64.61 billion in 2004 and SR52.66 billion in 2001. In October this year it reached SR79.95 billion as compared to SR79.53 billion in September and SR72.96 billion in January.
Currency held by commercial banks fell slightly in October to SR9.88 billion as compared to SR10.42 billion in September. In 2001, it was SR3.45 billion but in 2006 it increased to SR12.22 billion. According to the SAMA data, Saudi Arabia’s official reserves jumped to SR31.54 billion at the end of September this year compared to SR22.35 billion in August and SR22.17 billion in January.
The Kingdom’s reserves were SR17.60 billion in 2001, SR27.29 billion in 2004 and SR27.52 billion at the end of 2006.
According to SAMA’s third quarter report, M3 rose by 4.9 percent (SR34.8 billion) to SR744.1 billion as compared to an increase of 4.6 percent (SR31.5 billion) during the preceding quarter. It registered an annual growth rate of 19.4 percent (SR120.7 billion).
During the third quarter of 2007, SAMA continued to pursue a monetary policy aimed at maintaining price stability, supporting domestic economic activity and coping with the domestic and global economic developments. Due to an increase in the annual inflation rate of the Kingdom to 3.8 percent by the end of July and to 4.4 percent by the end of August, SAMA did not make any change on the official interest rates during the third quarter of 2007.
