Riyadh: The money supply in Saudi Arabia has surged to SR3.09 trillion ($824.3 billion) in May, marking an increase of approximately 9.39 percent compared to the same period last year.

This growth can be attributed to a shift in deposits towards higher-interest term accounts as savers seek better returns amid high-rate conditions.

Term deposits have been growing at the fastest pace among all money categories due to their higher interest rates.

Despite this, demand deposits still comprise around 48.6 percent of the total money supply, albeit slightly down from over 49 percent a year ago.

Other quasi-money deposits and physical currency account for smaller portions.

The shift towards interest-yielding options began as the US Federal Reserve implemented aggressive rate hikes to curb inflation, leading the Saudi Central Bank (SAMA) to mirror these moves.

However, with easing inflation pressures, the US Fed has loosened policy, implementing rate cuts totaling 100 basis points by the end of 2024.

Although further rate cuts were expected, concerns about global inflation have paused this trend.

Consequently, the Fed has kept rates steady recently, and SAMA has also maintained its rates to defend the riyal's dollar peg.

Banks have been competing for deposits by offering higher returns on time accounts due to strong credit demand.

Looking ahead, analysts anticipate a turning point in the interest rate cycle, with Goldman Sachs projecting three quarter-point rate cuts later in 2025.

Until then, Saudi banks and their customers are taking advantage of elevated returns offered by term deposits.