August 27, 2015 / 3:42 PM / 3 years ago

UPDATE 1-Saudi foreign reserves fall slows in July after bond sale

(Adds reason for decline slowing, breakdown of assets)

DUBAI, Aug 27 (Reuters) - The speed of decline in Saudi Arabia’s foreign reserves slowed in July after the government began issuing domestic debt to cover part of a budget deficit created by low oil prices, central bank data showed on Thursday.

The world’s largest oil exporter has been drawing down its reserves to cover the deficit. Net foreign assets at the central bank, which acts as the kingdom’s sovereign wealth fund, have been sliding since they reached a $737 billion peak last August.

But the latest data showed net foreign assets shrank only 0.5 percent from the previous month to 2.480 trillion riyals ($661 billion) in July, their lowest level since early 2013. They had dropped 1.2 percent month-on-month in June and at faster rates early this year.

In July, the government began selling bonds for the first time since 2007, placing 15 billion riyals ($4 billion) of debt with quasi-sovereign funds; this month it sold 20 billion riyals of bonds to banks.

The domestic debt sales appear to have reduced the need for the government to cover its deficit by drawing down foreign assets. Authorities have not publicly said how many bonds they will issue in future, but the market is expecting monthly issues of roughly 20 billion riyals through the end of 2015.

The foreign assets are held mainly in the form of foreign securities such as U.S. Treasury bonds - securities totalled $465.8 billion at the end of July - and deposits with banks abroad, which totalled $131.2 billion. The vast majority of the assets are believed to be in U.S. dollars.

Early this year, the central bank drew down its foreign bank deposits. But the July data showed it has changed its strategy in the last two months, rebuilding its foreign deposits while selling foreign securities more actively.

Securities shrank 3.6 percent month-on-month in July while deposits expanded 9.6 percent to their highest level this year. (Reporting by Andrew Torchia; editing by Andrew Roche)

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