(Bloomberg) -- The Saudi Central Bank updated its mandate to include supporting economic growth as one of its prime objectives, formally changing its fundamental operating principles for the first time in more than 60 years, Vice-Governor Ayman Alsayari said.
“Including 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,” Alsayari said in a written response to questions from Bloomberg on Thursday.
The central bank's new charter also reflects “changes in the financial sector and new types of risk,” he said. The bank now reports directly to the king under the new charter, a move intended to “make its independent status clearer and more explicit,” he said.
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 100 billion riyals ($22.4 billion) to local banks in liquidity injections and to cover the costs of loan deferrals for small businesses hit by the pandemic.
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The economy is expected to shrink by 3.8% this year, with growth then picking up to 3.2% in 2021, according to Finance Ministry forecasts. 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 $443 billion in foreign currency reserves, which have dropped from over $700 billion five years ago.
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The bank's main targets “remain anchored to the peg of the riyal at 3.75 to the U.S. dollar, as well as the safety and smooth functioning of the banking system,” Alsayari said.
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.
The new charter also formally changed the name of the central bank, established in 1952, from Saudi Arabian Monetary Authority, or SAMA, to Saudi Central Bank.
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