• Rates jump even after central bank said to offer loans
  • Oil enters bear market this week as glut concerns persist

Saudi Arabian interest-rate swaps climbed this week to levels last seen during the financial crisis, stoking speculation that the central bank needs to step up efforts to ease the country’s liquidity crisis.

The five-year swap rate jumped as much as 30 basis points this week to 3.70 percent on Wednesday, the highest close since January 2009, following a 22 basis point increase in July. The central bank offered domestic lenders about 15 billion riyals ($4 billion) in short-term loans at a discounted rate at the end of June, people familiar with the matter said last month.

The Saudi financial market is facing a cash squeeze as the government withdraws deposits and sells local-currency debt to fund a budget deficit after a slump in oil cut revenue. The central bank’s short-term loan program to boost liquidity came less than six months after it allowed banks to lend a greater percentage of deposits.

The swap-rate increase “reflects concerns that oil prices are going to remain low for longer," said Peter Kinsella, a foreign-exchange strategist at Commerzbank AG in London. "We’ll have to expect further measures from the authorities which might include reserve-requirement-ratio cuts and, or further discounted loan tenders."

Oil prices entered a bear market this week amid concern over a persistent glut.

Saudi banks’ loan-to-deposit ratio, a key measure of liquidity, climbed to 90.2 percent in June, the highest level since November 2008, according to central bank data. The three-month Saudi Interbank Offered Rate has been unchanged since rising to 2.24 percent on Monday, the highest level since 2009, according to data compiled by Bloomberg.

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