RIYADH, (Reuters) – The Saudi central bank does not consider it necessary to change monetary policy to support a tumbling stock market that lost almost a quarter of its value in 10 trading days to Saturday, the bank’s governor said on Monday.
Saudi interest rates usually track U.S. monetary policy because the riyal is pegged to the dollar. When the stock market crashed earlier this year, the central bank did not match two interest rates hikes by the U.S. Federal Reserve.
“We have a margin of freedom to move and deal with liquidity despite the dollar peg, ” the governor of the Saudi Arabian Monetary Agency, Hamad Saud al-Sayyari, said on Al Arabiya television.
“At present, we do not see the need to use this margin…”
Traders said one-year riyal interest rate swaps rose 10 ticks on the comments as the market was pricing out lower interest rate expectations.
The bank also sees no need to tighten restrictions on consumer lending to maintain financial stability, Sayyari said in the live interview.
Saudi Arabia’s central bank tightened limits on consumer lending after a surge in credit last year, cutting the limit on the tenure of loans and capping them at 17 times a borrower’s monthly salary instead of 27 times.
Saudi investors have used consumer loans to invest in stocks, hoping to ride a bull-run that saw the Riyadh bourse double in value last year. The market lost half its value between February and May, stinging leveraged investors.
“We have taken measures over the past two years to control personal loans but there is also need to provide for the needs of dealers (retail investors),” Sayyari said. “Growth in consumer lending has declined and is now at a level lower than last year.”
The value of consumer loans in Saudi Arabia reached 184.4 billion riyals ($49.17 billion) at the end of the second quarter, up 24 percent from last year, according to the latest data on SAMA’s Web site.
The central bank sees inflation rising to 2.1 percent in 2006, Sayyari said.
The cost of living index in Saudi Arabia, the world’s top oil exporter, rose 0.4 percent in 2005. The non-oil GDP deflator, seen by economists as a more accurate measure of inflation, went up 1.14 percent.