The Relationship of Consumer Loans, Credit Cards and the Interest Rate to Inflation in Saudi Arabia: An Econometric Study through Quarter Data for the Period 2007-2019

Abstract

This study aimed to measure the effect of consumer loans and the interest rate on inflation in Saudi Arabia through quarterly data for the period 2007-2019 and to perform the standard statistical tests needed for "unit root testing," "Johnson Cointegration", "Causation Granger test", "VECM model" The results of the Johnson Cointegration test showed that there is a long-term equilibrium relationship between (Consumer loans, interest rates) and inflation. Moreover, the result of the Granger causality test showed a causal relationship from one direction with significant statistical significance between Consumer loans and inflation, also a causal relationship from one direction between inflation rate and interest rate. Besides, the results of the VECM test also confirmed a short-term relationship between Consumer loans and inflation, which is in line with the outcome of the Granger test. This study recommends paying special attention to credit portfolio controls and encouraging banks to direct loans towards production and investment sectors that positively affect economic growth rather than granting consumer loans, which in turn contributes effectively to achieving the vision of Saudi Arabia 2030 according to the scope of the financial sector development program.