The interest rate banks charge one another for loans rose by the most since August on Sunday, extending a trend that's slowing earnings and corporate borrowing in the world's biggest oil exporter. The increase is defying the central bank, which has sought to ease the cash crunch by relaxing lending limits, offering new borrowing facilities and injecting funds into the financial system, including 20 billion riyals ($5.3 billion) pledged Sept. 25.
"Rates won't easily come down with one $5 billion injection," said John Sfakianakis, director of economic research at the Gulf Research Center Foundation in Riyadh. "Bringing them down would require a significant liquidity injection effort. The $5 billion is a good step forward, but given the asset size of Saudi banks it would require several additional injections."
Financial institutions in the Arab world's largest economy are bearing the brunt of a halving of oil prices since 2014. Economic growth in the kingdom is slowing, curtailing bank deposits just as the government increases borrowing to help plug a budget deficit that last year was the widest since 1991.