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Monetary Policy in Saudi Arabia
Introduction
In Saudi Arabia the monetary policy is ruled and managed by the Saudi Arabian
monetary agency of government (SAMA) it deals on with fixed exchange-rate rule.
The exchange rate is important because it impart the long-term structure for monetary
policy. Within this structure, there are some benefits to modify domestic monetary
conditions. It can be different by changing policy interest rates also introducing
practical guidelines on bank lending and controlling reserve obligation.
1-Implementation
SAMA has a lot of equipment’s to accomplish the objectives of monetary policy. It
allows it to achieve liquidity and competently observe monetary market positions.
The most crucial of these equipment’s are:
1. Reserve obligation
 Legal reserve
Banks managing in Saudi Arabia have to continue with SAMA legal reserves.
Depending on expansions of economic that occur can change the legal reserve
ratio. This is a very crucial and powerful equipment to observe the banking
credit and also influence monetary liquidity.
 Liquid reserve
In order to the legal reserve and in compliance of the law of the banking
control in Saudi; Banks operating have sustained with SAMA a liquid reserve,
i.e. which is a particular ratio of complete banking deposit liabilities in shape
of short-term assets which can be changed into cash within a short time of
month. As a result of the cash existing with banks operating in Saudi that can
be usage of lending transaction in stand for the distinction among total
deposits and reserve obligation.
2. Repo agreements
Repo agreements of government guarantees are a vital implement to SAMA to
direct domestic liquidity. This device is used with the purpose of instilling
liquidity in the banking organization or taking in liquidity from it.
3. Fx swap in foreign exchange market
Fx swap and reverse Fx swap agreements, that are esteemed and managed on
the roots of market interest rate, intend to influence capital flows by
decreasing turbulences of the monetary policy leading from advancements in
foreign exchange market. Such agreements are a significant device for guiding
for monetary policy and they are distinguished by being more amenable in
conditions of reliabilities and volume. They are used when the Saudi Riyal is
uncovered to approximate anxieties by imparting the banking structure with
the needed liquidity to allocate embryonic cases. The agreements of foreign
exchange swap are passed out efficiently flanked by commercial banks to run
their liquidity and obscure their financial stations in original place.
2.General description of the SAMA, managements, functions.
“It is the Saudi Arabian monetary agency. It was proven in 1952. It is the central bank
is Saudi Arabia. The SAMA management is controlled by governor Dr. Fahad
Almobarak, vice governor Dr. Abdulrahman ALhamidy, Deputy Governor For
Technical Affairs Dr. Abdulrahman Alkhalaf, Deputy Governor For Administration
and Finance Ibrahim Alnassar and board of directors Governor, ex-officio Chairman
of the Board. Vice Governor, ex-officio member and vice chairman. Three nominated
members from the private sector. The functions of SAMA embrace issuing the
national currency, the Saudi riyal. It acts as a banker to the government. Supervises
commercial banks. Manages Kingdom’s foreign exchange reserves. Conducts
monetary policy for promoting price and exchange rate stability. Promotes the growth
and ensures the soundness of the financial system.”(Statistics SAMA, 2012).
3.Banking system in Saudi Arabia.
Dissimilar to other banks around the world, the Saudi Arabian banks keep on a good
financial state, with a powerful economic structure, strong progress in most expanses
and a high point probability that their latest imposing act will continue to 2014.
SAMA showed an amazing increase in all banking pointers with the aggregate net
income of the banking system up 18.5% to SR32bn ($8.5bn) in 2011, compared to
just 8% net income growth in 2010. The outcomes in 2011 displayed that the Saudi
banks did not only carry away obstacles of the 2008 global financial crises but also
the enormous evasions like what happened to the family argument between Ahmad
Algosaibi and Saad group, with banks enlarging their businesses in diverse new areas.
4.Money functions.
Money plays four particular functions, which overcomes the problems of barter. The
money functions are to serve as: unit of values, medium of exchange, standards of
deferred payments and store of value. When the unit of all goods and services valued
is measured and articulated it is called unit of values. Money can also be a medium of
exchange it can be anything that could be exchanged between people. Money being as
a Standard of Deferred Payments if the money value stays the same and not changing
overtime and it ill dominate the obstacles related with making payments in the future
with particular conditions. Money as a store of value can be performed when the
owner of money have the purchasing power that can be used overtime.
5.Exchange rates and factors dose influence the Exchange rate.
“Exchange rates are determined by supply and demand. There are some factors that
influence the exchange rate, which are: Inflation, Interest Rates, Change in
Competitiveness, Relative strength of other currencies, Balance of Payments,
Government Debt and Government Intervention.”(Statistics economics help, 2012).
6.Relationship between the dollar & Saudi riyal.
The currency of Saudi Arabia Riyal and oil price will be tangled to the US dollar. The
US dollar is the central stand, which is the reserved currency for developing countries
and its important power it plays to pricing goods and services consist of oil. Analysis
say that an increase in supply of dollar it will stress of other currencies, it will make it
more expensive to export from these countries. Saudi Arabia hang on oil revenues in
order to fix fiscal needs and economic.
7.Inflation in Saudi Arabia.
In Saudi Arabia it was recorded that the inflation rate was 3.90% in November of
2012. Its reported by SAMA. Inflation Rate averaged 3.81% from 2003 to 2012; it
reached a high of 11.08% in 2008. It can measure a high rise or fall in prices that the
consumer will pay for good.
Conclusion
In this paper it was clear that SAMA is the central bank of Saudi and how it
controlled every aspect of the economy.
References:
Statistics SAMA. (2012). Statistics SAMA in profile 2012. Retrieved from
http://www.sama.gov.sa
Statistics economic help. (2012). Statistics economic help in profile 2012
retrieved from
http://www.economicshelp.org/macroeconomics/exchangerate/factorsinfluencing.html