• Home
• /
• Business

Saudi central bank sees lower inflationary pressures in Q4

JEDDAH - Saudi Arabia’s high rate of inflation may ease further in the final quarter of 2010, the central bank of the world’s top oil-exporting nation said on Monday. Inflation in the biggest Arab economy has shot up beyond analysts’ expectations this year, driven by soaring food and housing costs — factors outside the central bank’s control.

It has eased since touching an 18-month high of 6.1 per cent in August but at 5.8 per cent in October still remains the highest among Gulf Arab oil producers. “The data shows that there is a possibility of continued domestic inflationary pressure in the fourth quarter of 2010, but it will be at a lower level than in the previous two quarters,” the central bank said in its quarterly inflation report. It said housing price pressures should decrease as additional supply enters the market. The desert kingdom’s toolbox for tackling inflation is limited by its currency peg to the US dollar, with fiscal policy being the main tool to steer the oil-based economy.

Abdulhamid Alamry, a member of the Saudi Economic Association, said the riyal’s peg to the weak dollar is the main reason behind inflation in the country and that the situation will only worsen when Saudi banks begin to lend more.

“If Saudi lending goes back to normal the inflationary pressures will become even worse,” he said. Lending growth in Saudi Arabia — hit by debt restructuring in family businesses — has been picking up since it screeched to a halt last December but at 3.6 per cent in September 2010, the rate is far below double-digit clips seen in early 2009. Analysts polled by Reuters expect average inflation of 5.3 per cent this year and 5.1 per cent in 2011, still well below a record high of 11.1 per cent in July 2008.