Lebanese currency isn't threatened, says BDL governor

In an interview with Annahar, Salameh maintained that the market "is behaving naturally with no signs indicating that there is panic, anxiety or a crisis.”
by Annahar Staff

11 July 2018 | 14:45

Source: by Annahar

  • by Annahar Staff
  • Source: Annahar
  • Last update: 11 July 2018 | 14:45

This undated photo shows Banque Du Liban Governor Riad Salemeh (AFP)

BEIRUT: Central Bank Governor Riad Salameh dismissed concerns over the Lebanese currency depreciating against the U.S dollar by asserting that the country’s monetary situation “isn’t threatened". 

In an interview with Annahar, Salameh maintained that the market "is behaving naturally with no signs indicating that there is panic, anxiety or a crisis.”

An indicator of the stability of the market, says Salameh, is the average price of credit default swaps (CDS), which is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default or other credit event.  

Despite CDS prices increasing to 711.4 bp in 2018, Salemeh argues that this is still a relatively low cost. 

“The Lebanese pound is stable and not threatened,” he says, adding that the Central Bank’s foreign reserves of $44 billion, excluding gold, are a guarantee of the country’s continued stability. 

Alluding to concerns over the timespan of said stability, the Governor asserted that talk about an impending collapse is to “stir panic among people.”

Salameh also hinted at ulterior motives behind “rumors of the country’s uneasy financial stability,” yet refrained from elaborating more on the claims. 

He expects a 5 percent increase in deposits, which, coupled with an improvement in Eurobonds prices, is an indication of “our comfortable situation.”

Yet the Governor maintained that any sort of financial crisis will send ripples across Lebanon, affecting "people's confidence in the financial sector while diminishing their purchasing power." 

This will then yield an interest rate hike while impacting economic transactions which will lead us into a crisis "bigger than those weathered by BDL" in the past. 

The central bank will always be "ready to act," he says, before calling on the implementation of reforms to manage public spending, as well as an increase in the role of the private sector. 

Touching on commercial bank's efforts, Salameh praised the initiative undertaken by Bank Audi, which recently began encouraging depositors to transfer their savings from U.S dollars to Lebanese pounds and freezing them at an interest rate of 15 percent over five years. 

Regarding the suspension of BDL's subsidized housing program, which stirred confusion among prospective home-buyers, Salameh argues that the central bank "could not continuously pursue this issue in isolation from its mission to maintain monetary stability."

In 13 months, he says, $2.3 billion worth of subsidized housing loans were consumed, while another $500 million was depleted in February.

The Governor also asserted that BDL would inject a new package in 2019, with its "value to be determined at the end of the year."

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