Saudi Bank Cash Crunch Worsens

in FX by

Here’s something rather disconcerting that came across the wires earlier this morning (via Bloomberg):

“Saudi 3-Mo. Interbank Rate Climbs in Longest Streak in 7 Months Saudi Arabia’s 3-mo. interbank offered rate rises by 0.1bp to 2.308% in 16th day of gains, according to data compiled by Bloomberg. Longest rising streak since Jan. 10 Rate +7.2bps in Aug.; +76bps YTD.”

That, ladies and gentlemen is what a funding crunch sounds like … err.. looks like – whatever, you get the idea.  Here’s what Bloomberg had to say earlier this month:

“Saudi Arabia may be embarking on a new phase in its efforts to stave off the worst of a cash crunch among its banks.
The kingdom’s central bank, known as SAMA, offered domestic lenders about 15 billion riyals ($4 billion) in short-term loans at a discounted rate at the end of June to help ease liquidity constraints, people familiar with the matter said.”

“As well as providing liquidity and easing rules on lending, SAMA is clamping down on banks that are low-balling interest-rate submissions and probing banks’ currency products that allow speculators to bet against the kingdom’s currency peg.”

“Twelve-month Saudi riyal forwards climbed to the highest level on a closing basis since May 27, reflecting growing speculation that the currency will weaken.”

Ahh, yes. Remember the SAR forwards which spiked last August and climbed further into the beginning of this year when crushed crashed into the $20s? Here’s an updated chart:


So clearly they’ve come back in a bit, but allow us to give you some perspective:


What that shows you is the extent to which the market is still quite concerned about the three-dacade riyal peg falling as the Saudis continue to grapple with a challenging fiscal situation. We’ll put it this way, if oil were to stay near $35/bbl for an extended period, the massive double-digit deficit won’t narrow:


(Chart: Citi)

Better start thinking real hard about that production freeze. You don’t really want to keep running those kind of budget holes forever.

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