BEIRUT: A critical meeting Thursday brought together top Lebanese officials to weigh the decisive upcoming March Eurobond payment while the central bank further slashed interest rates on deposits.
The Central Bank ordered banks to lower interest rates on both U.S dollar and Lebanese pound deposits as Lebanon grapples with its most severe financial crisis in decades.
In a circular issued by Banque Du Liban, Central Bank Governor Riad Salameh called on banks to cap interest rates on dollar deposits at 4 percent and 7.5 percent on Lebanese pounds deposits.
Interest rates on one month, six months and one-year dollar deposits will be capped at 2, 3 and 4 percent respectively, while rates on Lebanese lira deposits will be capped at 5.5, 6,5 and 7.5 percent.
This will be applied to all deposits received or renewed after February 12, 2020.
The circular also orders the change in interest rates on deposits to be reflected in the Beirut Reference Rate (BRR) therefore decreasing rates on lending.
The Central Bank has been gradually decreasing interest rates since the nationwide protests broke out late last year, first calling on banks to cap interest rates on dollar deposits at 5 percent and 8.5 percent on Lebanese pounds deposits in December.
Lebanese banks had raised interest rates in an attempt to attract deposits in foreign currency and maintain dollar reserves, reaching astronomical levels in 2019. In some cases, banks were offering interest rates of 12 percent on long term dollar deposits.
President Michel Aoun met with Speaker Nabih Berri and Prime Minister Hassan Diab separately in Baabda before being joined by Finance Minister Ghazi Wazni, Economy Minister Raoul Nehme, Deputy Prime Minister Defense Minister Zeina Akar Adra, Central Bank Gov. Riad Salameh as well as the head of the Association of Banks in Lebanon Salim Sfeir.
Lebanon is faced with the difficult decision of either paying the Eurobond maturing in March or defaulting on its debt obligations for the first time in its history. Half of the March maturity is owned by foreign entities.
Formal capital controls will be introduced in the coming days, Wazni confirmed, putting an end to preferential treatment shown to certain depositors amid unofficial controls by banks.
Touching on the upcoming Eurobond payment, Wazni alluded to several options being studied.
"This is not an easy decision," he added.
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