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FinancialNews
16-05-23
Rising Repo Rates Could Impact Saudi Arabia's Manufacturing Sector, Warns SIDF
(MENAFN) Rising repurchase agreement (repo) rates pose a potential risk to Saudi Arabia's manufacturing sector, as borrowing from commercial banks becomes more expensive, according to a warning issued by the Saudi Industrial Development Fund (SIDF). Repo rates represent the interest rate at which a country's central bank lends money to commercial banks to address any fund shortages, and they are used as a tool by monetary authorities to manage inflation.
SIDF, in a statement on its website, highlighted that the increasing interest rates could result in a slowdown in the procurement of raw materials or semi-finished goods for certain industries, ultimately affecting the performance of the manufacturing sector. The fund also cautioned that reduced cash flow and consumption could lead to lower profitability and investment in the sector.
The fund cited experts who stated that the rise in repo rates could make it more challenging for companies in the Saudi manufacturing sector to obtain credit, potentially causing a decline in investment momentum and profitability.
The situation stems from the US Federal Reserve's decision in March 2022 to raise its federal funds rates, which has had a ripple effect on economies worldwide, including Saudi Arabia. Consequently, the Saudi Central Bank (SAMA) had to adjust its repo and reverse repo rates in order to align with the rising interest rates in the United States. As a result, interest rates in Saudi Arabia have reached levels not seen since 2008.
MENAFN16052023000045014228ID1106250714
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