Saudi Arabia's monetary system continues to overflow with liquidity as the monetary base (M0) for the fifth consecutive month, expanding by 16.4 percent, and setting an all-time record at SR 334.9 billion during October, surpassing January's SR 299.4 billion by quite a feat, according to a report by the National Commercial Bank (NCB)
On an annual basis, M0 increased by 28.9 percent, a growth figure unseen in almost three years. The Saudi Arabian Monetary Agency (SAMA) will certainly be challenged to limit the risks from such excess liquidity, the report said.
The main driver was deposits with SAMA which grew by a staggering 51.5 percent. The cyclical increase in deposits with SAMA during the fourth quarter of the fiscal year has been apparent over the past five years as banks overhaul their balance sheets for annual reporting toward the end of the year. In addition, currency outside banks recorded a growth of 12.2 percent to reach SR 138.0 billion during October. Furthermore, cash in vault reached SR 27.1 billion, an annual rise of 10.0 percent during the same month. "The rise of M0 is October was higher than expected, but we still expect a slowdown for the next few months as base effects offset the pace of annual acceleration," the bank said.
As for broad money (M3), growth edged closer to the elevated levels of 2011 by posting an increase of 13.0 percent by the end of October. The highlight of broad money was the sizable growth in time and savings deposits. Amid the globally suppressed interest rate market, time and saving deposits managed to gain a significant 15.2 percent during October over the same month last year.
The rise resulted in increasing its share of M3 to 24.1 percent at SR 325.0 billion. Meanwhile, the main component of broad money, demand deposits, continues to outpace time and savings deposits by posting an increase of 15.8 percent. The last component of M3, other quasi-monetary deposits, remained stagnant as it only recorded a 0.3 percent gain on an annual basis. However, due to the aforementioned, SAMA managed to increase its net foreign assets by a substantial 20.7 percent during October to reach SR 2.35 trillion. The elevated levels of oil prices and overflow of liquidity aided the buildup of excess reserves which reached 59.5 percent during the month, up from June's 44.6 percent.
Accordingly, the NCB report said inflation rate picked up slightly to 3.8 percent on an annual basis by the end of October, breaking a consecutive seven-month decline streak. Foodstuff is one of the influential categories in the benchmark inflation rate as Saudi Arabia is import oriented, excluding oil trade.
Food prices rose by 4.7 percent for the month of October, higher than this year's average of 4.3 percent albeit lower than 2011's 5.2 percent average. Meanwhile, the category of renovation, rent, fuel & water posted its slowest annual growth since May 2007. Rental prices continued their downward trend which lowered the category's inflation rate to 6.7 percent during October.
The anticipation of the mortgage law is expected to further drag down prices on real estate until the codifying is announced. The bank expects the inflation rate to pick up early 2013 as liquidity build-ups drive consumer prices higher.