The money supply (N3) reached 21.3% by the end of June compared to 21.64% in May to hit SR860.69bn, from SR709.30bn a year ago.
The money supply grew by 19.3% in April to SR826.21bn, falling below 20% for the first time since December 2007, while investments in assets declined to SR282.77bn.
According to the Saudi Arabian Monetary Agency (Sama), under demand assets grew by 32.1% in June to reach SR351.55bn compared to 30.6% in May. The money supply (N1) grew SR429.15bn, in the same month, up from SR333.11bn a year ago.
Sama foreign investments in financial securities reached SR1.1 trillion by the end of May compared to SR723.95bn a year ago.
Foreign assets reached SR1.4 trillion by the end of June, compared to SR875.25bn a year ago.
SAMA has already increased the compulsory reserves for Saudi banks four times since November 2007 by 13%, up from 7%, to curb loan growth, while saving assets have been increased to 4% from 2%.
Increasing subsidies and fighting inflation
Saudi Arabia has tried to defend its decision to keep the dollar peg by introducing a number of initiatives; including bonuses for public sector employees, slashing exports fees and increasing subsidies.
The annual inflation rate has already reached double digits, jumping to 10.5% in April; the highest it has been in ten years, up from 9.6% in March.
The inflation was attributed by the government to rising rents and food prices, which are pushed by increasing local demand and a dependency on imported foodstuffs.
Sama is expecting inflation to continue rising amid increases in public and private spending.
The organisation has already tried to absorb Riyal liquidity in the market by exchanging foreign currencies with local banks, in deals worth up to SR4.75bn in the first quarter of 2008.
Sama said in its report that interest rates on assets in local banks fell considerably, from 4.09% at the end of Q4 2007, to 2.03% by the end of Q1 2008.
SR20bn for new investment company
The Saudi cabinet has approved the setting up of a new investment company with a capital of SR20bn under the name of Saudi Arabia Investment Company (Sanabel).
The new company will invest in financial securities, capital assets, real estate, and foreign currencies.
The new company will be used as a bridge to connect the Saudi economy with international companies in technology transfer and marketing.
The Saudi government will also focus on attracting investments for certain sectors by bringing in major international firms.
Saudi Arabia is seeking to attract investments from Europe, the US and Japan to carry out various investment projects through to 2020.