SAMA to drain liquidity to counter Fed, Libor rise: Alkholifey

Saudi Arabian Monetary Authority (SAMA), the Kingdom’s central bank, is planning to drain surplus liquidity from the banking system to mitigate pressure on the riyal’s dollar peg following recent US interest rate hikes, its governor Ahmed Alkholifey told Bloomberg on Monday.

The central bank will allow some deposits placed with commercial banks in 2016 to mature without rolling them over, he told the news agency in Washington.

“Some amounts of deposits are maturing in the banking system," Alkholifey said, adding, “We'll let them mature and they will be back to the central bank instead of the banking system, and this will siphon off the liquidity to the system.”

The move is expected to boost Saibor, a key interbank rate that has lagged Libor, its London equivalent for dollars, and increased the prospect of capital flight.

Last month, SAMA raised the Saibor rate for the first time since 2009 by 25 basis points after it fell below Libor.

“In order to protect the exchange rate arrangements that we have at this time, we have to keep under our eyes what is the difference between Libor and Saibor,” said Alkholifey.

According to SAMA governor, banks were also reducing the amounts they park at the central bank through its reverse repo facility, which was supporting the interbank rate and close the rate gap.

In any case, SAMA is not concerned about capital outflow and does not plan to change its exchange rate arrangements.

“Fundamentals are good. The banking sector is strong and liquid and still profitable,” he noted, ruling out fears of capital outflow.