GCC COUNTRIES continue to have ample domestic liquidity, according to QNB Group analysis. Higher energy prices and increased hydrocarbons production have driven growth in credit, resulting in an expansion of the money supply. The main driver of money supply growth is credit expansion. However, there is considerable variation in liquidity growth across the GCC.
The overall domestic liquidity in the GCC region, as measured through the broad money supply (M2), grew by 5.2 percent in the year up to August 2012 to reach $778 billion.
The components of broad money supply are M1 and quasimoney.
M1, which includes physical currency in circulation and current accounts, rose by 8.8 percent to $364 billion. Quasi money, which includes foreign currency accounts and longer term deposits, increased by 2 percent to $413 billion.
Qatar recorded the highest broad money supply growth in the region in 2011 and during the first eight months of 2012. Qatar’s M2 grew by 17.1 percent in 2011 and 19.1 percent in the year until August 2012, to reach $101 billion. This is because the trends in hydrocarbon wealth creation and government spending were particularly strong in Qatar, driving rapid credit growth. As a result, quasi-money went up substantially.
In response to this strong growth in money supply, Qatar Central Bank started issuing treasury bills in May 2011 to lap up the excess domestic liquidity and also to help build a Qatari riyal yield curve.