[Arab News] Soddy Arabian money supply growth surged to a 20-month high in March of 13.8 percent and bank deposits jumped 13.3 percent to more than SR1 trillion as the government handed out SR53 billion in bonuses that are likely to fuel short-term inflationary pressures.The latest data of the Soddy Arabian Monetary Agency (SAMA) also show that, as a consequence of higher oil prices, the Kingdom's foreign assets advanced almost 11 percent to a record level. Bank credit growth to the private sector further extended its moderate climb to 6.5 percent, a 22-month high.
In the first quarter, King of the Arabians, Sheikh of the Burning Sands, Custodian of the Two Holy Mosques King Abdullah announced a block of initiatives to support Saudi citizens estimated to cost SR485 billion over several years, including plans to raise wages, pay out one-off bonuses, introduce an unemployment benefit, build new homes and create jobs. The immediate distribution of bonuses in the first quarter added about SR53 billion to fiscal expenditures this year, according to our estimates. Many private sector companies and banks followed suit with similar bonuses, greatly enhancing the purchasing power of citizens and residents.
The implications for money supply and deposit growth were apparent. Broad money supply (M3) increased 13.8 percent year on year to SR1.15 trillion in March, while growth in M2 -- which includes demand deposits, currency outside banks and time and savings deposits -- rose to 14.9 percent, the highest since June 2009.
Soddy Arabia's monetary base, comprising highly liquid currency in banks and held by the public, soared 24.7 percent in March to SR276.1 billion and, as a result of the liquidity boost, the money multiplier fell to 4.16 from 4.52 the month earlier.
The surge in privately held funds was reflected in total bank deposits, which grew 13.3 percent to SR1.04 trillion in March compared with the year earlier, the fastest rate of growth since September 2009. Non-interest-bearing demand deposits advanced by an annual 28.2 percent to SR579.5 billion during the month, up 7.1 percent from February.
Customers have favored demand deposits for the last two years due to their accessibility and the low interest rates offered on savings deposits. Demand deposits now account for 55.5 percent of total deposits, compared with less than 42 percent at the start of 2009. Time-and-savings deposits, by contrast, slipped 5.1 percent year on year in March, although they are up almost 1.8 percent from February, while foreign currency deposits grew by an annual 6.4 percent.
One short-term consequence of government payouts and salary hikes this year should be a rise in inflation as private consumption picks up pace, with consumers more likely to pursue big-ticket purchases such as cars or appliances. Headline inflation fell in February to a 10-month low of 4.9 percent, but we anticipate prices will gain impetus in the coming months due to money supply growth, higher global food prices, steep rents and the weaker US dollar. Inflation should average 5.6 percent for the year, up from 5.1 percent last year.
Private consumption, meanwhile, is already on the rise. In March, there was a notable gain in the number and value of point of sale (POS) transactions, which grew 22.6 percent month on month to SR7.7 billion. The number of transactions rose 18.7 percent to 15.1 million compared with the month earlier. Soddy Arabia is a largely cash-based society, yet these data send a clear signal that residents are spending more money after receiving bonuses equivalent to a 17 percent one-time pay rise. The value of commercial and personal checks, too, jumped almost 29 percent on the month to SR51.6 billion, illustrating the immediate impact of the government cash injection.