Monetary authority of Saudi Arabia (SAMA) has banned banks of the Kingdom to sell forward contracts that allow speculators to bet on the actual truth of the national currency from the U.S. dollar, told Bloomberg a source informed about the banks received the circular of the regulator. The ban came into force immediately. It does not apply to forward foreign exchange transactions, backed by real goods and services, said the interlocutors of the Agency. In mid-January, the regulator has banned the options that allow speculators to bet on the weakening of the Rial, said Agency sources in the beginning of the year.
The authorities reinforce control over foreign exchange traders amid increasing rumors about the inability of the world’s largest exporter of oil to keep the peg to the dollar in the face of shrinking oil revenues. Hedge funds, including PointState Capital and Pershing Square Capital Management, are betting that Saudi Arabia will for the first time since 1980-ies to decouple the national currency from the us, although the authorities deny plans for the devaluation of the Rial.
“It seems that the monetary authority is concerned about the resumption of volatility of forward contracts with the Rial, — said the Agency Apostolos Bantis, head direction “emerging markets” of Commerzbank AG. — Given the strong commitment of the authorities of the peg to the dollar and the desire to keep volatility low, they could try to convince banks to abandon the use of and other structural products.”
“The Directive indicate an increasing mismatch between the monetary policy of the Saudi authorities and the expectations of the market,” said Bloomberg Raza Agha, chief economist at VTB Capital in the region middle East and Africa. — It seems that SAMA remains committed to the dollar peg, despite how much it had to spend foreign exchange reserves, high budget deficits and forecasts that oil prices will go up slowly and gradually.
At the end of April the son of the Saudi king Salman Mohammed bin Salman submitted to the government a reform plan up to 2030, which, among other things, aims by 2020 to rid the country of oil dependence. One of the most serious problems of the authorities will be to overcome the major economic downturn since the crisis of 2008 — the government reduces spending to reduce the budget deficit, which by the end of 2015 reached 15% of GDP.
“The reduction in sovereign assets, a high level of deficit, the problems with costs, and the lack of clarity on the planned reforms has a negative impact on the market sentiment, which is reflected in the forward market, the national currency,” said Agha. Annual forward contracts, used by traders when betting on a correction of a fixed exchange rate, tied Rial to the dollar 30 years ago, grew by 110 points, down 630 points on Friday.
Zach Schreiber of PointState Capital, which earned $1 billion betting against the oil two years ago, in may predicted that low oil prices in the long term and the increase in costs will force the Kingdom to abandon the peg of the Rial to the dollar. Bill Akman, founder of hedge Fund Pershing Square noted in its letter to investors in January that Saudi Arabia and China it is unwise to spend billions of dollars to support their national currencies.