The Saudi central bank poured between $2-$3 billion in deposits into the banking system to ease liquidity pressures, its first direct injection of US dollars in a decade, bankers said on Tuesday. The Saudi Arabian Monetary Agency (SAMA), the central bank, also provided riyal liquidity and the bankers said it may add more US dollar funds to the system given current conditions. The bankers said SAMA had deposited between $200-$350 million with each bank. The global financial crisis has created tight credit conditions for banks, forcing governments and central banks around the world to provide liquidity to defrost interbank lending. The three-month Saudi Interbank Offered Rate stood at 4.65125 percent and is likely to fall after the latest attempt to ease credit conditions. SAMA made a rare repurchase rate cut on October 12 – to 5 percent from 5.5 percent – and also lowered reserve requirements to give increased liquidity to banks. It was the first repo rate move since February 2007 and the first cut in four years. Saudi Arabia, which pegs its currency to the US dollar, normally adjusts the reverse repo rate – the deposit rate at SAMA – as it tracks the US Federal Reserve. Meanwhile, the reserve change was expected to release about 10 billion riyals ($2.67 billion) to commercial banks from funds held in the central bank as cash reserves. That move had sent a signal to markets that the Kingdom, which has long insisted it had the means to support its economy and banking sector if necessary, was prepared to take required action. Saudi interbank rates eased after the latest cash infusions, with the three-month rate falling to 4.6375 percent from 4.65125 percent. “They are doing this for growth reasons, knowing that 2009 will be a slower year amid a context where the availability of credit globally is tightening and where domestic rates are at levels that are choking private sector growth,” said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate. Banks are now struggling to finance raise billions of dollars required to finance industry and infrastructure projects, leading economists and policymakers to expect project delays and cancellations. Saudi banks are “not immune, but less exposed,” Murad Ansari, an analyst at EFG-Hermes, a regional investment bank, wrote in a report. Almost 86 per cent of the total banking sector assets are invested in the booming local economy rather than abroad, but banks may be impacted by upheavals in the regional financial markets. Saudi Arabia's Tadawul All-Shares Index, the region's largest stock market, was trading higher for the second day running after shedding a total of nine percent in the first two days of the working week. Tadawul All-Shares Index (TASI) was trading up 2.7 percent on 6,518.21 points, spurred by the leading petrochemicals sector which gained three percent and banks 1.3 percent. Market leader and petrochemicals giant SABIC added two percent.
