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RIYADH: Saudi banks’ money supply M3 reached SR3.09 trillion ($824.3 billion) in May, rising about 9.39 percent from the same period last year. 

According to data by the Saudi Central Bank, also known as SAMA, time and savings deposits accounted for 35.16 percent of the total, slightly below the 16-year peak of 35.2 percent recorded in March, but still representing the highest share since 2009. 

The expansion has been driven by a marked shift in deposits. Savers are increasingly locking their money into term deposits to take advantage of higher interest rates. 

These interest-bearing accounts have grown at the fastest pace among all money categories, reflecting depositors’ preference for higher returns amid a high-rate environment. Term deposits offer better interest in exchange for keeping funds for a fixed period, and therefore tend to gain popularity when interest rates are elevated. 

Despite this shift, demand deposits — funds in checking accounts that can be withdrawn on demand — remain the single largest component of the money supply, at around SR1.5 trillion, or roughly 48.6 percent of M3. 

That share has edged down from over 49 percent a year ago as more savers move into interest-yielding options. Meanwhile, other quasi-money deposits, such as foreign currency accounts and certain short-term instruments, represent roughly 8 percent or SR250 billion of the total, and physical currency in circulation outside banks adds about SR246 billion, according to SAMA data. 

As the US Federal Reserve embarked on aggressive rate hikes over the past two years to curb inflation, SAMA mirrored those moves to maintain the currency peg. This pushed Saudi interest rates to multi-year highs, peaking around 6 percent late last year. 

With inflation pressures subsequently easing, the US Fed began to loosen policy, implementing rate cuts totaling 100 basis points by the end of 2024. 

The rate relief was expected to continue into 2025. Indeed, by January, signs emerged that the deposit mix was starting to rebalance, as demand deposits began regaining ground once benchmark rates had come off their peak, according to SAMA data. 

Any further rate cuts were abruptly put on hold amid renewed global inflation concerns. Speaking earlier this month at the European Central Bank’s annual forum in Sintra, Portugal, Federal Reserve Chair Jerome Powell said the Fed would probably be in a position to begin cutting rates were it not for the inflationary impact of President Donald Trump’s new tariffs, according to Bloomberg. 

Central bankers expect Trump’s import tariffs to lift inflation, so they have adopted a cautious “wait-and-see” stance before resuming any rate reductions. 

As a result, the Fed has kept rates steady in recent months, after having trimmed about 100 basis points late last year, with the risk of inflationary pressure from tariffs delaying further easing. 

Given that SAMA typically mirrors Fed decisions to defend the riyal’s dollar peg, this pause in US rate cuts has likewise led the Saudi central bank to hold its rates, keeping domestic borrowing costs elevated. 

Banks, in turn, have been competing for deposits by offering better returns on time accounts, a strategy to shore up liquidity while credit demand stays strong. 

Looking ahead, officials and analysts foresee an eventual turning point in the interest rate cycle. Goldman Sachs, for example, now projects that the Fed will begin cutting rates later in 2025, delivering three quarter-point rate cuts by the end of the year, up from two cuts in its earlier forecast, according to a July article by Bloomberg. 

Until that pivot materializes in interest rates, Saudi banks and their customers are capitalizing on the elevated returns offered by term deposits — a trend that has pushed savings deposits to record highs and fundamentally altered the composition of the Kingdom’s money supply. 

SINGAPORE: Oil prices were steady on Thursday as investors weighed the potential impact of US President Donald Trump’s tariffs on global economic growth, while a weaker dollar and signs of strong US gasoline demand underpinned prices.

Brent crude futures were up 4 cents at $70.23 a barrel by 8:00 a.m. Saudi time. US West Texas Intermediate crude fell 1 cent to $68.37 a barrel.

On the demand side, macro uncertainty has led to a more cautious buying environment, particularly in Asia, said analytics firm Kpler in a note, while adding that geopolitical risk premiums have faded with the Israel-Iran ceasefire holding.

On Wednesday, Trump threatened Brazil, Latin America’s largest economy, with a punitive 50 percent tariff on exports to the US, after a public spat with his Brazilian counterpart Luiz Inacio Lula da Silva.

He has also announced plans for tariffs on copper, semiconductors and pharmaceuticals, and his administration sent tariff letters to the Philippines, Iraq and others, adding to over a dozen letters issued earlier in the week, including for powerhouse US suppliers South Korea and Japan.

As policymakers remain worried about the inflationary pressures from Trump’s tariffs, only “a couple” of officials at the Federal Reserve’s June 17-18 meeting said they felt interest rates could be reduced as soon as this month, the minutes released on Wednesday showed.

Higher interest rates make borrowing more expensive and reduce demand for oil.

Supporting oil prices, however, is a weaker US dollar in today’s Asia trading session, said OANDA senior analyst Kelvin Wong. A weaker dollar lifts oil prices by making it cheaper for holders of other currencies.

Also supporting prices, US crude stocks rose while gasoline and distillate inventories fell last week, the Energy Information Administration said on Wednesday. Gasoline demand rose 6 percent to 9.2 million barrels per day last week, the EIA said.

Global daily flights were averaging 107,600 in the first eight days of July, an all-time high, with flights in China reaching a five-month peak and port and freight activities indicating “sustained expansion” in trade activities from last year, JP Morgan said in a client note.

“Year to date, global oil demand growth is averaging 0.97 million barrels per day, in line with our forecast of 1 million barrels per day,” the note said.

Additionally, there is doubt the recent increase in production quotas announced by OPEC+ will result in an actual increase in production, as some members are already exceeding their quotas, said Tony Sycamore, an analyst at IG.

“And others, like Russia, are unable to meet their targets due to damaged oil infrastructure,” he said.

OPEC+ oil producers are set to approve another big output boost for September, as they complete both the unwinding of voluntary production cuts by eight members, and the UAE’s move to a larger quota.