Saudi Central Bank bans betting against riyal peg

Saudi Arabia’s central bank has told banks it is banning the use of options and other products that allow speculators to bet against its currency peg,  a Saudi bank told Reuters.

The Saudi Arabia Monetary Agency (Sama) is understood to have sent a circular to banks last week saying that dollar-riyal forward structured contracts are banned with immediate effect.

The regulatory agency is also said to have asked lenders for details on derivative deals dating to January, saying they hadn’t informed the central bank about some products.

The move reportedly comes from a new effort to reduce pressure on its currency peg just days after the central bank demanded information from lenders on the offerings.

Forward foreign-currency transactions backed by actual goods and services will still be allowed, it is said.

The Saudi Arabian Monetary Agency “wants to make sure that there is no snowball effect against the riyal in the forwards markets”, the unnamed executive said to Reuters.“So now banks in the country are banned from accepting any options against the riyal.”

Saudi recently unveiled plans for a raft of reforms to offset the tumbling oil prices that have left the kingdom with a state deficit of $98bn, plus external deficits.

On Sunday, Saudi’s stock market fell sharply ahead of government’s announcement on details concerning the economic reforms, which will take place on Monday.

The initial announcements made in May were described by Reuters as being  “aspirations” rather than specific measures. Announcments made today could include targets in a drive to make government more efficient, efforts to involve the private sector in development, and possibly fiscal steps to curb a budget deficit caused by low oil prices