Saudi central bank paints rosy picture of economy

Top Saudi central bank officials painted a highly positive picture of the economy at a rare news conference on Wednesday, saying growth was likely to strengthen and they were not worried by deflation.

The tatest official data showed the economy in recession during the second quarter, with gross domestic product shrinking from the previous quarter and the non-oil sector expanding only 0.6 per cent from a year earlier.

Read: Saudi Arabia enters recession in Q2

Annual consumer price inflation was negative for an eighth consecutive month in August. The unemployment rate among Saudi citizens edged up to 12.8 per cent in the second quarter from 12.7 per cent in the first.

However, central bank governor Ahmed al-Kholifey said he expected a positive economic performance in the coming period.

“From the indicators we saw in the first half, the non-oil sector’s growth is still positive. From the indicators we saw, especially for consumption, they’re also positive, and I hope that will reflect on the non-oil sector,” he said.

Another central bank official said the bank was not worried about deflation because consumption was rising. Officials also said they saw no reason for the Saudi riyal to fall in the forward foreign exchange market, and that there was no concern about banks’ bad loans.

Asked about the direction of Saudi interbank money rates (SAIBOR), Ayman al-Sayari, deputy central bank governor for investment, said:

“Today’s levels reflect the level of liquidity in the system, which appears to be ample. We don’t expect any aggressive movements in SAIBOR up or down, other than perhaps a reflection of the interest rates in the United States.”

Saudi officials said in August that the government was willing to consider funding itself partly in Chinese yuan, a reflection of Saudi Arabia’s growing economic ties with China.

Asked about this, Sayari said on Wednesday that there had been no material change in the central bank’s approach to the yuan in its foreign reserves since last year. The vast majority of the central bank’s net foreign assets, which totalled $480 billion in August, are believed to be in US dollars.

There has been no radical change in the central bank’s investment policy, Kholifey said. He said he did not expect the government to transfer any of the foreign reserves to the Public Investment Fund, the sovereign fund that Riyadh is building up so that it can lead big economic development projects.