Saudi Arabia's central bank hiked interest rates on Thursday, with a rebounding stock market giving the bank greater flexibility to try to clamp down on money supply.
The Saudi Arabian Monetary Agency (SAMA) boosted rates by 20 basis points on Thursday morning ahead of a widely anticipated hike by the US Federal Reserve, traders in Dubai and Riyadh said. SAMA confirmed it had raised rates but did not say by how much. The riyal is pegged at 3.75 to the US dollar.
An official at Riyad Bank's treasury department said banks received a circular in the morning saying that the benchmark repo rate had been raised to 5.20 percent and the reverse repo was raised to 4.70 percent. The Federal Reserve, which has increased US borrowing costs at its last 16 policy meetings, is expected to raise interest rates again by 25 basis points to 5.25 percent later on Thursday.
Traders said SAMA would have to raise rates to maintain stability if it does not want to tweak its currency peg, which the Saudi central bank has ruled out.
Although inflation is not a major problem in Saudi Arabia, money supply had surged earlier this year, registering its fastest rise in a year in March before slowing in April.
Saudi Arabia, like other Gulf states, usually changes interest rates in step with the Fed. But earlier this year it did not, raising speculation that a growing divergence with US policy could force the oil producer to loosen its currency peg.
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