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Saudi Arabia M3 Money Supply Slows to Seven-Year Low

Saudi Arabian M3 money supply growth, an indicator of future inflation, slowed to a more than seven-year low in July.

M3 money supply growth, which includes demand deposits and currency outside banks, eased to 2.3 percent in July, compared with 3.4 percent the previous month, the central bank said on its website today. July bank claims on the private sector advanced an annual 4.9 percent compared with 4.4 percent in June, according to the central bank data.

Credit growth remains “weak although positive,” said Monica Malik, Dubai-based chief economist at EFG-Hermes Holding SAE. “The slowing in total deposit growth, with the negative real interest rates, is also impacting money supply growth.”

The world’s largest oil supplier is spending more than $400 billion over five years to strengthen the economy and help finance infrastructure projects. The Saudi Industrial Development Fund has provided loans to companies seeking to finance expansion projects with tighter lending conditions in the Arab world’s biggest economy.

M1 money supply growth, a narrower measure that excludes longer-term deposits and money market funds, slowed to 20.6 percent in July from 21.2 percent in June, the Saudi Arabian Monetary Agency said. M2 money supply growth, which includes time and savings deposits, slowed to 5.1 percent in July from 6.9 percent in June.

Economic activity is expected to increase toward the end of the year with the end of the summer and of Ramadan, Malik said. “This is likely to see some pick up in money supply growth as government spending goes up again, and we also expect to see stronger private sector credit growth,” she said.

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