BEIRUT: Central Bank Governor Riad Salameh reiterated Tuesday Banque du Liban's commitment to keeping the Lebanese currency's peg against the dollar stable, asserting that the “BDL's policy will not change.”
In an interview with Annahar, Salameh stressed that there is a national policy in place to preserve the Lebanese currency's stability, with “foreign reserves of $44 billion in hand to do so for a long time.”
Salameh added that the money supply in Lebanese pounds in the banking system does not constitute a bloc that could threaten the foreign reserves of the Central Bank.
Touching on the recent decision of a number of commercial banks to offer higher interest rates on Lebanese pounds term deposits over three to five years, Salameh argued that the “period of low-interest rates both globally and regionally is coming to an end.”
“The U.S Federal Reserve is raising interest rates, and is expected to continue doing so, sending ripples across emerging markets,” Salameh said while stressing that BDL doesn’t interfere in the policies of private banks.
An indicator of the stability of the market, he says, is the decrease in 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.
While some banks are offering upward to 16 percent on Lebanese deposits, CDS spreads decreased from 7 percent to 6 percent, Salameh told Annahar.
This, he says, is evidence that “risk is Lebanon has fallen in the eyes of global markets,” adding that he expects banking loans to decrease by 1.6 percent compared to 2017, while deposits are expected to increase by 5 percent based on data from the first five months of 2018.
Broaching on BDL’s 2016 financial engineering strategy, which raised eyebrows among analysts, Salameh reiterated that it was a preemptive decision to counter any volatility that Lebanon could encounter.
First, BDL swapped Lebanese Pound (LBP) treasury bills (TBs) held in its portfolio with equivalent Eurobonds issued by the Ministry of Finance, amounting to USD 2 billion.
It then sold the recently acquired Eurobonds and issued USD Certificates of Deposits (CDs) to commercial banks against fresh USD inflows provided by banks.
Lastly, BDL discounted at 0% an amount equivalent to the previous transaction (Eurobonds and USD CDs) of LBP denominated debt held by commercial banks in their portfolio. This transaction was subject to a voluntary 50% haircut on interest in favor of BDL.
“Currently, security is stable, and the political situation is better, despite the constant friction that leads to continued vigilance among the citizens, but what is comforting is the stock and reserves that BDL was able to amass during the last period.”
In regards to the suspension of BDL's subsidized housing program, which stirred confusion among prospective home-buyers, Salameh asserted that it is “not within the Central Bank’s mission to set the housing policy of the Lebanese state.”
The day the central bank entered into the fray of housing loans and other subsidized loans, “the aim was to pump more liquidity into the market to stimulate the economy,” he said.
However, BDL “could not continuously pursue this issue in isolation from its mission to maintain monetary stability,” Salameh said.
Speaking on his expectations for Lebanon's economic growth for 2018, Salameh said that all indications point towards a 2 percent growth rate while taking into account the decline of the real estate sector as well as an inflation rate of between 4 and 5 percent.
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