The Saudi economy has registered a record SR 1.24 trillion in actual revenues during 2012, yet liquidity levels remain relatively subdued, according to the National Commercial Bank’s Saudi Economic Review.
The composed policy of the Saudi Arabian Monetary Agency (SAMA) has been successful at mitigating the risks of excess liquidity and inflationary pressures have been limited as of late. Furthermore, the continuous acceleration of credit in the local economy aided SAMA in controlling the monetary situation throughout last year.
The monetary base (M0) reached an all time high during October at SR 334.9 billion, only to decline by SR 38.7 billion to settle at SR 296.2 billion for November. The contraction was mainly attributed to deposits with SAMA as banks withdrew SR 24.7 billion to accommodate credit expansions and customer withdrawals which reduced total banks’ deposit base.
Additionally, cash in vault decreased by 31.1 percent M/M while currency outside banks dropped 4 percent, SR 5.6 billion, during November on a monthly basis. However, in comparison to November 2011, M0 grew by 13.7 percent. As the financial year came to an end, we expect the monetary base during December to have picked up as local banks overhaul their balance sheets for their annual reports.
Consequently, money supply (M3) decelerated to a still elevated level of 11.4 percent Y/Y during November.
The NCB report said demand deposits, forming the largest share of M3, posted the second slowest growth rate during 2012, an annual in- crease of 12.7 percent to reach SR 705.3 billion. Due to Islamic preferences and the risk averse mentality of customers, the majority of deposits reside in non-yielding accounts. In addition, given the robust economy which aided higher interest rates, albeit rising at a slow pace, a shift toward time and savings deposits has been observed.
By the end of November, time and savings deposits recorded a growth of 9.3 percent Y/Y. However, on a monthly basis, demand deposits as well as time and savings deposits declined by 0.6 percent and 4.7 percent respectively. Despite the fact that M3 decreased by 1.2 percent from October to November of 2012, other quasi-monetary deposits managed to expand by 4.6 percent M/M while registering a 10.8 percent Y/Y gain.
Consumer prices picked up slightly driven by globally rising commodity prices, the report said. The inflation rate increased to 3.9 percent during November compared to the same month of the previous year. The Reuters/Jefferies CRB Index gained 1.1 percent during the month which was reflected in the food and beverage category by rising 4.8 percent Y/Y for November. On a regional basis, the city of Madinah’s food and beverage prices have been recording significant increases mainly due to base effects owing to a spike in prices earlier this year. Prices are now rising at normal pace, however the annual change in food prices recorded 13.2 percent while other cities are in line with the national level.
Meanwhile, the category of renovation, rent, fuel & water posted its slowest annual growth since April 2007. The decelerating rate of rental prices decreased the category’s rate to 6.5 percent on an annual basis for November. The main two cities facing rental pressures, Jeddah and Dammam, have recorded a rise in rent prices by 10.4 percent and 9.3 percent Y/Y respectively. “We expect the inflation rate to edge slightly higher for December and continue on an upward trajectory during the first quarter of 2013,” NCB said in its report.