Riyadh – Mubasher: The Saudi Arabian Monetary Agency (SAMA) injected about $4 billion in June to Saudi local banks in forms of short-term loans and deposits, to promote liquidity and encourage KSA banks to lend more.
SAMA injection has eased the domestic liquidity; however a structurally tight domestic liquidity backdrop is expected, as a result for the conflicting policy objectives of monetary accommodation and stable Fx policy, Bank of America Merrill Lynch reported.
"The monetary base expanded by 6.2% month-on-month and 2.6% year-on-year in June, while M3 contraction eased to -2.6% year-on-year, from -3.2% year-on-year in May. The injection represents 4.7%, 0.9% and 0.8% of reserve money, banking sector deposits and M3, respectively," the report said.
Reserve assets declined by $46 billion in H1-16, while central government deposits at SAMA went down by $19 billion over the same period, despite the disbursement of a $10 billion syndicated loan in May, according to data released by SAMA.
If the domestic debt issuance recorded SAR 100 billion ($27 billion) in H1-16, the central government budget deficit would be likely to stand at SAR 210 billion ($56 billion) compared to SAR 362 billion deficit reported in 2015.
“We expect large and regular sovereign Eurobond issuance to support FX reserves and domestic liquidity, with maiden issuance possibly in September, according to local press," the report said.
Merrill Lynch added that large issuance could weigh on regional bond spreads if risk appetite does not hold up or fiscal balance slips.
"EMBIG index inclusion is unlikely, in our view, and we would expect the bulk of the demand to come from non-dedicated EM investors. Saudi Arabia CDS premium to Qatar, relative credit metrics and likely larger planned issuance size suggests Saudi EXD is likely to be issued at a premium to Qatar, in our view.”
