Vol 11, No 3 (2023)

The Determinants of Interest Rates in the Kingdom of Saudi Arabia: An ARDL Approach (1985-2020)

Arwa Althobaiti


This paper investigates the key factors influencing interest rates in the Kingdom of Saudi Arabia (KSA) over the period 1985-2020. The study utilises an Autoregressive Distributed Lag (ARDL) model, which is best suited for capturing both short-run and long-run impacts of independent variables. The study explores the impact of multiple factors including money supply (M3), exchange rate index (Exc), oil prices (Oilp), stock market index (SMI), consumer price index (CPI), and the London interbank offered rate (LIBOR), and U.S. interest rate indexes (LIBOR) on the dependent variable, i.e., the interest rate on deposits in SAR. Our findings demonstrate a significant influence of the dollar exchange rate and the US interest rate (LIBOR) on the deposit interest rate in KSA in the long term. In the short term, the results reveal an insignificant negative impact of the change in the deposit interest rate of the money supply. These results reflect the realities of the Saudi Arabian economy, which is heavily influenced by external variables due to its open nature. This study provides valuable insights for policymakers, financial institutions, and investors in understanding and predicting interest rate movements in the KSA.

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Kingdom of Saudi Arabia; Autoregressive Distributed Lag; exchange rate index.

Publication information

Volume 11, Issue 3
Year of Publication: 2023
ISSN: 1857 - 8721
Publisher: EDNOTERA

How to cite

Althobaiti A.: The Determinants of Interest Rates in the Kingdom of Saudi Arabia: An ARDL Approach (1985-2020). Journal of Applied Economics and Business, Vol 11, No. 3, 46-58. (2023)