Saudi Arabia: The Sharp Rise in Inflation
April 6, 2008Inflation in Saudi Arabia is forecast to reach a record annual average of 6.5 per cent in 2008 because of an expected new wave of interest rate cuts and a surge in rents and food prices.
Historically the Saudi inflation rate has been quite low in the period 2000 - 2006, within a range of 1% - 2%. The central Saudi bank is pegging the Saudi Riyal to dollar. When the Federal Reserve is cutting rates and US currency is tumbling to record lows, the Saudi Bank is forced to lower interest rates fueling inflation.
Credits to the Saudi private sector, encouraged by low interest rates, are soaring. The Saudi Government pours billions in new economic cities. The Saudi budget surplus stands at all times high - 13% in 2008, a result of high energy prices. All signs of overheated economy are in place.
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