Saudi central bank bans use of options against riyal: executive

Reuters ^ | 05 June 2016 | Faisal Al Nasser

[Lorianne]

Saudi Arabia's central bank has told banks it is banning the use of options and other derivatives to speculate against the riyal, in a new effort to reduce pressure on its currency peg, a senior executive at a Saudi bank told Reuters on Sunday.

The Saudi Arabian Monetary Agency "wants to make sure that there is no snowball effect against the riyal in the forwards markets", the executive said, declining to be named because of commercial sensitivities.

"So now banks in the country are banned from accepting any options against the riyal." Non-speculative trade in the riyal forwards market is not forbidden, the executive added.

The central bank did not respond to a telephone call to its headquarters seeking comment.

Its order is a renewed attempt to prevent low oil prices, which have saddled Saudi Arabia with big state budget and external deficits, from pressuring the riyal's three-decade-old peg of 3.75 to the U.S. dollar.

In January, commercial bankers in Saudi Arabia said the central bank had contacted them privately and urged them not to conduct derivatives trades against the riyal. The central bank has also been asking banks for information on their trades.

Since January, the riyal has rebounded in the onshore forwards market SAR1Y=. But it has remained near multi-year lows in the offshore forwards market SAR1YD=W, which is not under the direct control of the central bank, and the cost of insuring Saudi sovereign debt against default SAGV5YUSAC=MG has stayed high.

[SkyDancer]

Mussies can’t invest because it’s a form of gambling. Same with them buying health and auto insurance. They’re gambling that they won’t get sick or have an accident.

[fhayek]

Legislating against a market. Yeah that should work. I bet that this will only encourage more people shorting the riyal, worldwide.

[Navy Patriot]

Saudi central bank bans use of options against Riyal

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