JEDDAH – Saudi Arabia's broad money (M3), growth remained well below 2011's performance, recording 9.8 percent Y/Y during June, the National Commercial Bank said in its latest Saudi Economic Review. M3 is the broadest measure of money used by economists to estimate the entire supply of money within an economy. It is the category of the money supply that includes M2 as well as all large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. NCB report however noted that it rebound from May's growth of 7.7 percent Y/Y. The main driver of M3 continues to be demand deposits which gained by 14.4 percent in June over the same month last year. Nonetheless, the level of demand deposits has somewhat stagnated during the second quarter of 2012 on a monthly basis. Meanwhile, time and saving deposits have held their positive trajectory for the seventh consecutive month as they expanded by 3.6 percent Y/Y. Despite experiencing suppressed interest rates, the local banking system managed to attract time and saving deposits and increase their share of M3 to 24 percent following their record low figure of 23 percent during April. The report forecast that the M3 growth will remain sluggish throughout the third quarter of 2012, adding that its annual growth for 2012 is expected at 10.9 percent, "a more conservative figure than the International Monetary Fund's (IMF) 12.2 percent projection." Moreover, similar to M0 components, local food prices should ease for coming few months and pick up again as Haj nears, the report said. Nevertheless, the inflation rate is projected to remain between 4.5 percent - 5 percent for 2012. M0 is the most liquid measure of the money supply. It only includes cash or assets that could quickly be converted into currency. This measure is known as narrow money because it is the smallest measure of the money supply. It is a measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical currency circulating in the economy. Besides, given the fact that the Saudi riyal is pegged to the US dollar, the benchmark policy rate is expected to remain unchanged for an extended period. Commenting on the conduct of Saudi monetary policy, the IMF recently said that Kingdom's "use of macroprudential and liquidity management tools remains key to effective policymaking." The Saudi Arabian Monetary Agency has steered the Saudi economy through the global financial crisis and is keen on supporting and maintaining the growth of the economy by managing its monetary tools effectively. – SG/QJM
