* Inflation is tolerable, set to ease next yr-SAMA chief
* Bank lending to private sector consistent SAMA policies
* Interest rates appropriate
* Dollar peg serves economy well
By Angus McDowall and Marwa Rashad
RIYADH, March 3 Inflation in Saudi Arabia is
running at acceptable levels, the country's central bank chief
said on Sunday, playing down concerns that the economy could be
Fahad al-Mubarak, governor of the Saudi Arabian Monetary
Agency (SAMA), told a news conference inflation was expected to
ease next year having edged up to a seven-month high of 4.2
percent year-on-year in January.
Mubarak, a former chairman and managing director of Morgan
Stanley Saudi Arabia, has not met the press inside the
kingdom since being appointed in December 2011, though he did
speak in public in Abu Dhabi last year.
"Current inflation is tolerable and if you compare to other
emerging markets we are well below," he said. "The expectation
for this year and next year - and I will cite the IMF
(International Monetary Fund) - is expected to be a bit lower at
4.6 in 2013 and 4.3 in 2014."
SAMA said in January inflationary pressures in the kingdom
should remain stable in the first three months of this year.
The world's top oil exporter has recovered since a 2009
downturn, helped by heavy public spending on welfare and housing
construction, driven in part by reaction to unrest elsewhere in
the Arab world.
Asked if he was concerned about the high level of bank
lending to the private sector, Mubarak said: "Not at all. The
bank lending to the private sector is consistent with all the
policies that SAMA puts (in place) and monitors."
Bank lending to Saudi Arabia's private sector rose 15.9
percent in January, only slightly slower than a 16.4 percent
increase in the previous month, which was the fastest clip since
He said the ratio of loans to deposits among the banks was
about 75 percent, below the level of 85 percent which SAMA sets
as a cap to limit loan growth.
"It is positive that the banks continue to lend to the
private sector," he said, adding that the quality of banks'
lending portfolios had improved in recent years, resulting in
fewer bad loans.
Mubarak also said SAMA's key policy rates - the repo and
reverse repo - were appropriate since there were no signs of
economic overheating, and their current levels of 2.0 percent
and 0.25 percent, respectively, served banks quite well.
"The only (development that would change this interest rate
policy) is if it causes overheating to the economy. We don't see
it overheating. It is quite normal," he said.
Saudi Arabia pegs its riyal to the dollar, which Mubarak
said continued to serve its economy well, repeating the
country's long-standing policy position.
Because of the peg, SAMA needs to keep its policy rates near
U.S. benchmarks to avoid excessive pressures on its currency
SAMA last changed its repo rate in January 2009, cutting it
by 50 basis points to temper the impact of the global crisis. It
reduced its reverse repo rate by 25 basis points in June 2009.
"As you notice throughout the world they are moving toward
the very low interest rate and the objective of that is to
continue to support lending to the private sector to participate
in growth and create jobs," Mubarak added.
Mubarak declined to provide a forecast for Saudi economic
growth, saying SAMA took guidance from IMF predictions of 4.2
percent in 2013 and 3.8 percent in 2014.
Growth of the $728 billion Saudi economy, the largest in the
Arab world, slowed to 6.8 percent last year from 8.5 percent in
2011, when it was buoyed by a higher oil output to compensate
for shortages due to a civil war in Libya.