SAMA likely to hike interest rate only once in 2019: Fitch

Fitch Solutions expects Saudi Arabian Monetary Authority (SAMA), the Kingdom’s central bank, to enact one more 25 bps interest rate hike over 2019, it said in a recent report.

“This represents a downward revision from our previous forecast of 75 basis points (bps) worth of cumulative hikes this year, and comes on the back of the US Fed’s relatively more dovish January 30 statement,” the report added.

Also read: UAE, Saudi among 'most attractive' MENA telecoms market: Fitch

Fitch said, “Given the riyal’s peg to the US dollar, we expect SAMA will continue to track the US Fed’s policy rate moves closely. We note that a slowdown in the hiking cycle is positive for Saudi nonhydrocarbon growth, which has remained relatively sluggish in recent years.”

Meanwhile, Fitch Solutions maintained its forecast for inflation to moderate from 2.5 percent year-on-year (YoY) in 2018 to 2 percent in 2019.

“This forecast is primarily underpinned by our assumption that the base effects of the government’s January 2018 implementation of fuel subsidy cuts and a 5 percent value-added tax (VAT) will abate,” the report added.

Fitch Solutions also revised down its forecasts for SAMA’s repo and reverse repo rates to 3.25 percent and 2.75 percent respectively in 2019, compared with 3.75 percent and 3.25 percent previously.