The kingdom's financial system is still liquid and can provide room to finance both the public and private sectors, but with sentiment playing a key role, reported Arab News, citing Jadwa Investment in its statement.
Sama’s decision to raise the reverse repurchase rate to 0.75 per cent, following the US Federal Reserve’s interest rate hike, will not have a significant impact on domestic liquidity, it added.
Jadwa’s forecast is based on Sama’s recent precautionary measures to secure the Saudi economy, such as introducing new 90-day repos and capping the weekly issuance of Sama bills to SR3 billion ($799 million), according to the report.
We expect Sama’s key policy Repo rate to be raised by 0.5 percentage points in 2017, mirroring the anticipated federal funds rate hike,” the Jadwa economists said, adding that this policy move is not expected to have a material impact on liquidity levels, deposit growth, or movements in market rates, however.
The Saudi government is also seen to continue issuing sovereign bonds to domestic banks and other public institutions in 2017, the report said.
Total public debt is expected to hit SR338 billion (14.3 per cent of GDP) by the end of 2016, 70 per cent of which will be domestic debt.
Jadwa forecasts total public debt to rise to SR474 billion (18.3 percent of GDP) in 2017, with more international bond issuances likely to finance a narrower deficit, stated the report.
Saudi Arabia’s record sovereign bond issuance this year will have a positive and instant impact on domestic liquidity, leaving more room for the kingdom’s banks to continue operating, it added.
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