Saudi Arabia raised the official repo rate on its dollar-pegged riyal by a quarter point to 3.5 percent on Wednesday in response to a similar increase by the US Federal Reserve. But bankers said the riyal's market repo rate, at which banks borrow from the Saudi Arabian Monetary Agency (SAMA) or central bank, rose a steeper 47 basis points - also to 3.5 percent. "The market rate lagged below the official rate for some time," said one banker. "Now they've brought them level". SAMA was expected to ensure from now that the market rate remains at least as high as the official rate, he added.
The move widens the spread between Saudi Arabia's market repo rate and US rates to a half point from just over a quarter point on Tuesday and a few basis points in mid-March.
Saudi Arabia's interest rates usually shadow those in the United States but the spread has varied in recent years from a few basis points up to 80 or 90 basis points.
Bankers said SAMA might be trying to send a signal to cool the kingdom's rampant equity and real estate markets, which have surged in the last two years on the back of record oil prices.
"(SAMA) might want to show that banks which overlend will have to pay more for their loans," said one banker.
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