Poor communication with markets fueling speculation the devaluation of the Saudi riyal

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Poor communication with markets fueling speculation the devaluation of the Saudi riyal

29/11/2015 05:53 | Number of Views: 22

 

Direction Press

 

Saudi Arabia cut speculation value of the currency may return to the weakness of the authorities' efforts in the field of communication with the markets more than it is due to the economic pressures on the UK.

Saudi bankers and senior in the Gulf conversations were summarized by Reuters he said this week that Riyadh has the tools to protect under severe balance of current account deficit and the budget as a result of lower oil prices.

He said bankers who many of them in contact with Saudi authorities said Riyadh could announce a strategy to cope with the era of cheap oil details within the next month when the Ministry of Finance presented the 2016 budget plan, they said, the possibility of reducing the currency is still far away.

And turning the political sensitivities and culture of government secrecy prevented the officials to discuss policy options in public so far, leaving financial markets looting of speculation manner with respect to the face of the steady decline in Riyadh in the price of oil. And at a price of less than $ 45 a barrel for Brent crude is down about 20 percent since the beginning of the year after that aired from levels above $ 115 last year.

Worried investors hedge risks and to give Saudi Arabia for peg rate at 3.75 riyals to the dollar, which did not limit it to three decades of policy. The decline in the riyal in the futures market last week to the lowest level since 1999 after that exceeded the cost of insurance on sovereign debt Arabia cost of insuring Philippine counterpart.

Said Monica Malik, chief economist Abu Dhabi Commercial Bank "for a large part of the fiscal deficit Blur expected size of this year." She explained that with the government to cut spending and take other measures to contain the deficit "should help ease concerns."

The central bank did not respond nor the Ministry of Finance to requests for comment on the policy.

Monica said that next year the expected steps, which include ending the extraordinary bonuses in government wages and impose a tax on undeveloped land has been shrinking budget deficit to about ten percent of GDP from the current 20 percent.

This will allow Saudi Arabia to crack down on the clouds of foreign assets, a main concern for the pessimistic.

 

* Devastating dimensions

Regional bankers said that the kingdom is facing a difficult economic circumstance but not the degree to which may force them to lift the peg to the dollar.

And it contradicts their visions with the views of some analysts in the major Western financial institutions who are discussing the imminent reduction of the value of the Saudi currency and devastating proportions.

He wrote Bank of America Merrill Lynch last week, "If Saudi Arabia was unable to resist due to the continued strength of the dollar forces of attraction and the fact the riyal Manveh Russian and Brazilian currencies have oil breaks down to $ 25 a barrel."

But bankers say that the Gulf Riyadh is determined to avoid reducing the value of whatever was almost the price. Vzar market and the resulting high cost of import Satgaan any advantage may derive financial state of the rise in oil revenues after conversion of the riyal to the dollar.

Saudi Arabia imports a large part of its needs from food and consumer goods, machinery has been rapid inflation leads in the prices of those materials to the political discontent in the case of devaluation.

It is sufficient to state reserves to support the currency for years. When the average price of Brent 57.55 dollars a barrel between March and September, the foreign central bank assets shrink at an annual rate of $ 87 billion to remain in possession of 647 billion dollars.

Even if the accelerated depletion of assets it will take several years to reach $ 225 billion, and the level of fire cover 18 months of imports, equivalent to twice that enjoyed by most countries.

But these accounts do not reassuring in the markets because Saudi officials have not yet How will deal with the pressures explain. Most of the scarce and limited public statements yet on the public assurances for the safety of the economy, which did not convince many investors.

Earlier this month, when he was a decrease in oil revenues it raises the interest rate the interbank cash market to the highest level since 2009 Hun Governor of the Central Bank, which described the increase "minor" in interest rates, insisting that the banks have ample liquidity. But borrowing costs have increased even more since then.

 

* Local sensitivities

In a country known for its secrecy over its plans the government may have exacerbated the consequences of reluctance to communicate with the market due to leadership changes that accompanied King Salman ascend the throne in January.

His son, Prince Mohammed bin Salman took over supervision of great economic machine at a time when the kingdom is struggling decline in oil prices, which probably surprised officials Bmdah.The ancestors are dealing with another bout of market speculation about reducing the value of the currency and Saudi Arabia in 1998.

Political sensitivity, which also calls for any counter-measures to keep under wraps. Vkbh public sector wages and reduce support and curb construction projects will hurt the generous welfare policies that contributed to the preservation of social peace in Saudi Arabia.

In a sign that Oil Minister Ali al-Naimi has toned down his statements were issued last month that he may have to raise domestic energy prices. The minister has softened his position after one week through the assurances that there is an urgent need for the welfare of citizens and that it will have protection.

But the internal political obstacles will not prevent Riyadh to take the necessary steps to support the financial stability, according to sources, she said regular contact with officials.

A senior executive said Saudi financial company that big government is expected to be published after the budget statement next month plan for economic development over several years to take into account the context of the price of oil is cheap.

 

 

 

He said, "This will answer many of the questions people will appear to talk about reducing the amount of the value of the currency." jh