SR 1.4 trillion: Money supply reaches record in January

The monetary situation in the Kingdom continues to show the thriving state of the Saudi economy. The year 2013 started off with a lower monetary base (M0) for the month of January as it recorded a decline of SR 11.3 billion to settle at SR 339.28 billion after it reached SR 350.6 billion in December 2012. Even though M0 gained 13.3 percent Y/Y, the M/M contraction was mainly due to deposits with SAMA (Saudi Arabian Monetary Agency), as banks opted to utilize their funds by withdrawing nearly SR 12.9 billion to accommodate credit expansions and customer withdrawals, which reduced total banks' reserves, according to a report by the National Commercial Bank (NCB).
However, currency outside banks increased to SR 134.1 billion; an increase of 10.8 percent Y/Y. Additionally, cash in vault reached SR 20.2 billion, an annual rise of 11.1 percent during the same month.
The money supply (M3) for the month of January reached another record high at SR 1.4 trillion, posting an increase of 13.4 percent Y/Y by the end of January. The highlight of the broad money was the sizable growth in demand deposits which constituted 54 percent of M3 and totaled to SR 762.6 billion; a 15.5 percent increase Y/Y, due to the lower volume of trading on the stock market and the subdued interest rate environment. Currency outside banks, constituting 9.58 percent of M3, recorded a growth of 10.9 percent Y/Y to reach SR 134.1 billion. Additionally, time and savings deposits and other quasi-monetary deposits increased by 9.1 percent and 13.2 percent respectively on an annual basis. Time and savings deposits reached SR 323.4 billion while other quasi-monetary deposits reached SR 180 billion in January.
The bank said liquid state of the economy and its buoyant growth should theoretically drive up local consumer prices. The month of January witnessed increase in the inflation rate to 4.2 percent following December's 3.9 percent.
The Reuters/Jefferies CRB Commodity Index gained 0.6 percent during this month which was reflected in the food and beverage category by rising 6 percent Y/Y for January, as Saudi Arabia is import oriented. More specifically, legumes and tubers contributed to the rise in the benchmark inflation rate as prices accelerated at 24.4 percent in response to the higher global commodity prices.
Meanwhile, the category of other expenses and services showed a growth of 3.2 percent.
Moreover, the category of rental prices continued their downward trend which lowered the category's inflation rate to 5.1 percent Y/Y. The anticipation of the mortgage law is expected to further drag down prices on real estate until the complete codifying is announced.
“We do believe that the food-stuff category will hover around 5 percent for the first half of 2013 and expect the inflation rate to jump above 4 percent early 2013 and recording an average of 4.5 percent for the whole year,” the bank said.