Saudi Arabia on Monday said its currency was stable despite volatility in the futures market as the kingdom takes unprecedented measures to deal with low oil prices. The Saudi riyal will remain pegged at 3.75 to one US dollar, said the Governor of the Saudi Arabian Monetary Agency, Fahad bin Abdullah al-Mubarak, according to the Saudi Press Agency.
The currency is "backed by a full range of monetary policy instruments, including foreign exchange reserves," he said. "The agency noticed recent volatility in the futures market of the Saudi riyal against the dollar as a result of wrong perceptions of the general economic situation in Saudi Arabia by some of the market participants," Mubarak added.
Saudi Arabia, the world's biggest oil exporter, reported a record budget deficit of $98 billion for 2015 after a drastic fall in global crude prices. The finance ministry last month imposed unprecedented cuts, including an immediate reduction in fuel subsidies, with plans to further diversify the economy and possibly increase charges on public services.
Riyadh maintained high spending last year, and launched a costly military intervention against Iran-backed rebels in Yemen, by drawing on huge fiscal reserves it accumulated when oil prices were high. The kingdom withdrew more than $80 billion from the reserves, which stood at $732 billion at the end of 2014, and issued bonds worth around $20 billion. All Gulf Cooperation Council states except Kuwait peg their currencies to the US dollar.
Earlier in December, Saudi Arabia, Kuwait and Bahrain raised interest rates after the US Federal Reserve increased its rates for the first time in more than nine years. In an interview published last week, Saudi's Deputy Crown Prince Mohammed bin Salman told The Economist that the country is "far" from an economic crisis, because it still has ample reserves and growing non-oil revenues. Global crude prices have plunged from above $100 a barrel in early 2014 to below $33 on Monday.
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