According to the few people who know anything about this matter, Saudi authorities have ordered banks to stop allowing cheap bets on a currency devaluation.
With speculation mounting that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges, the Saudi Arabian Monetary Agency told lenders to halt the sale of options contracts on riyal forwards. The directive, issued at a Jan. 18 meeting in Riyadh, applies to local banks and the Saudi branches of international banks, sources said.
SAMA’s "motive is to kill this speculative activity over the sustainability of the riyal peg," Apostolos Bantis, a credit analyst at Commerzbank AG, said by phone from Dubai. "Over time, this measure will lead to an easing of the forwards because it will make it far more risky for investors to do this trade."
Countries with currencies pegged to the dollar, such as Saudi Arabia and Hong Kong, are coming under increasing pressure from traders speculating that it’s become too expensive for policy makers to continue defending exchange rates as the U.S. currency soars. Bets for a devaluation of the riyal reached their highest in about two decades in January, even after SAMA said for a second time in four months it will stick with its currency peg.
The central bank declined to comment when contacted by telephone Wednesday.
Saudi riyal forwards for the next 12 months rose as high as 906 points before paring the increase to 885 points as of 13:52 p.m. in Riyadh, implying the currency may weaken about 1 percent in 12 months. The nation’s benchmark stock gauge, the Tadawul All Share Index, dropped 4.8 percent, bringing its loss to 21 percent so far in 2016.
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