Saudi central bank warns banks against riyal speculation

 20 Jan 2016 - 10:38

Saudi central bank warns banks against riyal speculation

By Archana Narayanan

DUBAI: The Saudi Arabian central bank has warned commercial banks against betting on depreciation of the riyal as tumbling oil prices put pressure on the Saudi currency, several bankers operating in the market said.

The riyal, pegged in the spot market at 3.75 to the U.S. dollar since 1986, hit a record low against the dollar in the one-year forwards market last week as some banks and funds hedged against the risk that low oil prices might eventually prompt Riyadh to scrap the peg.

But the bankers, declining to be named because of commercial sensitivities, said the Saudi Arabian Monetary Authority (SAMA) had now contacted them privately and urged them not to conduct derivatives trades that would  pressure the riyal.

"SAMA has ordered banks to stop giving structures for FX swaps. I mean banks can quote for straight forwards and FX
swaps, but can't price for swap options," said one banker.

They said the central bank's action had so far succeeded in supporting the riyal in the forwards market; one-year
dollar/riyal forwards have dropped back to 690 points from a record 1,020 points last week, even though the Brent oil price has hit fresh 12-year lows below $30 a barrel.

A spokesman for SAMA could not be reached for comment.