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International Monetary Fund

Deposit and Credit Growth 8. Change in Bank Foreign Assets and Liabilities, 2014–May 2017 9. GCC Liquidity Interbank Interest Rate Volatility 10. Interbank Claims 11. Interbank Rate Spreads, LIBOR 12. Deposit and Lending Rates 13. Autonomous Factors of Money Demand TABLES 1. Components of the Central Banks’ Balance Sheet 2. Excess Reserves 3. Simplified Balance Sheet of a Central Bank APPENDICES I. The Impact of Liquidity on Monetary Policy Transmission in GCC II. Central Bank Liabilities Held by Commercial Banks and Commercial Banks

Mr. Olumuyiwa S Adedeji, Mr. Erik Roos, Mr. Sohaib Shahid, and Ling Zhu

excess reserves at the central bank. 5 The operation of monetary policy is complicated by the large oil price-driven liquidity fluctuations. Large external and fiscal surpluses during periods of high oil prices have generally beeen associated with increases in liquidity, reversed during times of low oil prices ( Figure 3 ). Figure 3: GCC Liquidity and Oil Prices Growth (Jan 2008=100) Source: Haver; national authorities; and IMF staff calculations. 1/ GCC liquidity refers to the simple average of monthly excess reserve ratio, measured by the share of

International Monetary Fund

of the reserve requirements. In Kuwait, the minimum reserve requirement is zero. Figure 9. GCC Liquidity and Interbank Interest Rate Volatility (January 2013=100) Source: Haver; national authorities; and IMF staff calculations. 1/ GCC liquidity refers to the simple average of monthly excess reserve ratio, measured by the share of excess reserves in total banking assets. 2/ GCC liquidity/interbank interest rate volatility is the simple average of monthly volatilty of the excess reserve ratio/interbank interest rates, computed as the standard

International Monetary Fund
Effective liquidity management is important to promote macro-financial stability in the GCC countries. Fixed exchange rate regimes provide credible nominal anchors in the GCC countries, but combined with open capital accounts, they also entail limited monetary policy independence. At the same time, high dependence on hydrocarbon revenue has made the region vulnerable to oil price-driven liquidity swings. And the latter can affect monetary policy implementation, including by exacerbating credit and asset price cycles. This highlights the importance of frameworks aimed at forecasting liquidity and ensuring appropriate liquidity levels through the timely absorption or injection of liquidity by central banks. Over the past decade, liquidity management in the GCC countries has been based mainly on passive instruments. Abundant liquidity during times of high oil prices have placed liquidity absorption at the center of the central bank operations. Reserve requirements have helped absorb liquidity but have not been used very actively. Standing facilities, another key instrument, are more passive in nature, with the amount of liquidity absorbed or injected driven by banks rather than monetary authorities. Central banks bills or other instruments have also been used, but issuance has not systematically been based on market principles. In addition, these operations have been constrained by limited liquidity forecasting capability and the shallow nature of interbank and domestic debt markets.
Mr. Olumuyiwa S Adedeji, Mr. Erik Roos, Mr. Sohaib Shahid, and Ling Zhu

. Policy Rates 2. GCC Current Account and Fiscal Balance, 2004–2018 3: GCC Liquidity and Oil Prices Growth 4: Saudi Banking System Excess Reserves 5. Oil Prices and Monetary Policty Transmission/ 6. Impact of a 100 Basis Point Increase in the Federal Funds Rates on GCC’s

Mr. Olumuyiwa S Adedeji, Mr. Erik Roos, Mr. Sohaib Shahid, and Ling Zhu
This paper provides empirical evidence that the size of the spillovers from U.S. monetary policy to non-oil GDP growth in the GCC countries depends on the level of oil prices. The potential channels through which oil prices could affect the effectiveness of monetary policy are discussed. We find that the level of oil prices tends to dampen or amplify the growth impact of changes in U.S. monetary policy on the non-oil economies in the GCC.
Abdullah Al-Hassan, Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Ms. Tian Zhang
The Gulf Cooperation Council region faced a significant economic toll from the COVID-19 pandemic and oil price shocks in 2020. Policymakers responded to the pandemic with decisive and broad measures to support households and businesses and mitigate the long-term impact on the economy. Financial vulnerabilities have been generally contained, reflecting ongoing policy support and the rebound in economic activity and oil prices, as well as banks entering the COVID-19 crisis with strong capital, liquidity, and profitability. The banking systems remained well-capitalized, but profitability and asset quality were adversely affected. Ongoing COVID-19 policy support could also obscure deterioration in asset quality. Policymakers need to continue to strike a balance between supporting recovery and mitigating risks to financial stability, including ensuring that banks’ buffers are adequate to withstand prolonged pandemic and withdrawal of COVID-related policy support measures. Addressing data gaps would help policymakers to further assess vulnerabilities and mitigate sectoral risks.