Riyadh-Mubasher: Saudi Arabian Monetary Agency (SAMA) would be cautious about changes in interest rates, taking into consideration that the current decline in oil prices could weigh on the domestic economy, AlJazira Capital said in a recent report.
It added that changes in interest rates would have a mixed effect on the banking sector.
The increase in interest rates would decrease domestic credit as well as consumption and output, yet it would improve foreign investment and balance of trade. It is also expected to improve the net interest margins of banks, the research firm added.
The direct impact of the interest rate hike by the U.S. Federal Reserve would be limited on Saudi economy. The liquidity of Saudi banks and other financial institutions would factor in the impact of the U.S. interest rate increase.
Moreover, the rate hike will likely be gradual and provide some time to the economy and the banking sector to adjust.
However, in the short term, the rate hike would increase the interest rates in Saudi Arabia and make investments costlier, AlJazira Capital said.
