Saudi Interbank Interest Rate Drops First Time in Eight Months

  • Three-month rate remains near highest level in seven years
  • Slower U.S. rate increase forecasts reduced demand for hedging

A key interest rate in Saudi Arabia, the biggest Arab economy, fell for the first time in eight months amid declining expectations for an increase in U.S. borrowing costs.

The three-month Saudi Interbank Offered Rate, a benchmark used to price loans, fell less than 1 basis point to 1.79111 percent on Wednesday, its first decline since July 5, according to data compiled by Bloomberg. The rate has risen 24 basis points this year and is near the highest level in seven years, the data show.

“Investors don’t feel a material need to hedge for interest rates, because the U.S. rate rise expectations have declined,” Anita Yadav, the head of fixed-income research at Emirates NBD PJSC, Dubai’s biggest bank, said by phone. “If the demand for fixing rates drops, it will affect the saibor rate downwards.”

The Federal Reserve held off from raising borrowing costs last week and scaled back forecasts for how high interest rates will rise this year because of the potential impact of weaker global growth and financial-market turmoil on the U.S. economy. Oil, Saudi Arabia’s main source of revenue, has also climbed about 50 percent since reaching a 12-year low on Jan. 20.

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