Support of economic growth as an explicit element in the central bank’s mandate is meant to cover evolving variables such as financial innovation, which has the potential to foster economic growth if steered in the appropriate direction. The bank now reports directly to the king under the new charter, a move intended to “make its independent status clearer and more explicit. Saudi Arabia’s central bank has been one of the key vehicles for providing stimulus to the economy this year as the coronavirus pandemic ravaged the private sector, and as authorities refrained from providing a significant fiscal response. The monetary authority has provided over SAR100bn ($22.4bn) to local banks in liquidity injections and to cover the costs of loan deferrals for small businesses hit by the pandemic.
Economy is expected to shrink by 3.8 per cent this year, with growth then picking up to 3.2 per cent in 2021. Low oil prices and production volumes have left the government constrained in how it responds to the economic damage caused by the pandemic. It’s chosen to focus on cutting spending to keep the deficit under control, hoping that spending by the kingdom’s sovereign wealth fund will provide economic stimulus. The central bank’s previous mandate focused on monetary stability, maintaining the Saudi riyal’s peg to the dollar and oversight of the financial sector. It also manages the kingdom’s $443bn in foreign currency reserves, which have dropped from over $700bn five years ago. Speculators have often bet that the dollar peg would break during periods of low prices, but it’s been maintained for about 35 years. Although pressure intensified earlier this year with the collapse in crude prices, 12-month dollar-forwards for the Saudi riyal have since stabilized.