Saudi Arabia cut some borrowing costs yesterday to relieve pressure on its dollar-pegged currency that has mounted on growing bets Riyadh will allow the riyal to appreciate, bankers said.
The Saudi Arabian Monetary Agency (Sama), the central bank of the world's largest oil exporter, reduced the reverse repurchase rate by 50 basis points to 4.25 per cent, three bankers in Saudi Arabia and the UAE said.
Investors have piled into the riyal in the last week since a source familiar with Saudi policy told Reuters the country could consider revaluing its currency for the first time since 1986, when it pegged the riyal to the dollar at 3.75.
The reverse repo rate is used by banks to set deposit rates, so cutting the rate would make bets on exchange-rate appreciation less attractive, bankers said.
The central bank kept its benchmark repurchase rate, which banks use to determine lending rates, unchanged at 5.5 per cent.
"They are doing this to calm down the market and prevent speculation on the local currency," said John Sfakianakis, chief economist at SABB, HSBC's Saudi affiliate.
"Investors will find it less attractive to hold deposits in riyal," he said.
The Saudi riyal hit a 21-year high on Thursday of 3.70 and investors are betting on an appreciation of as much as 3.2 per cent appreciation in the riyal in a year, according to forward rates yesterday.
Saudi Arabia's bourse extended gains into a fourth trading day yesterday as the kingdom's second interest rate cut this month boosted the appeal of holding stocks.
The benchmark of the Arab world's largest stock market rose 1.2 per cent to 9,633.39 points, its highest close since October 31, 2006. The index has risen more than 20 per cent this year. ( Gulf )