Lebanon's central bank governor said on Monday (May 15) foreign currency reserves were stable and did not require immediate boosting via intervention, but it would take measures to maintain monetary stability if necessary.
The central bank last year carried out what the International Monetary Fund termed “unconventional” financial engineering to boost falling foreign currency reserves.
“The holdings of the central bank in terms of dollars are at appropriate levels although they have decreased in the past two months, but there is no need to do initiatives for the time being,” Governor Riad Salameh said on the sidelines of a Euromoney conference in Beirut.
Between June and August, the central bank exchanged some of its Lebanese pound-denominated debt holdings for dollar-denominated Finance Ministry Eurobonds, while private banks transferred in dollars and were given the Eurobonds and newly issued dollar certificates of deposit in exchange.
The central bank also bought pound-denominated bonds held on local banks' books for the full principal amount plus interest up to maturity, instantly boosting their local currency reserves.
By mid-October reserves had risen to 41 billion dollars from around 35 billion dollars before the financial operations. Since then, they have declined again and on 30 April stood at 39.3 billion dollars, according to the latest central bank figures.
Salameh said “the bank has taken initiatives that are not always similar, so there will be initiatives to maintain stability, because monetary stability is important for Lebanon.”
Lebanon's economy has for years been hindered by regional unrest, including the war in neighboring Syria, and political crisis at home.
The IMF said its GDP increased by 1 percent in 2015 and projected a similar rate for 2016, compared with a potential growth rate of 4 percent.
Public debt stood at 138 percent of GDP in 2015.
“The liquidity in the banking sector is high and therefore, and our policy is not to increase interest rates, so therefore there is a potential for financing the economy,” Salameh added.
Salameh said the appointment of President Michel Aoun after a two-and-a-half-year period without a president, and the formation of a government with Saad al-Hariri as prime minister late last year has created a basis for better growth.
But Lebanon is on the brink of crisis again with its politicians at odds over an election law at the heart of the nation's sectarian system, threatening to leave the country without a parliament for the first time.
Parliament's term expires on June 20 and without a compromise Lebanon faces what one minister has called the most serious political crisis since the end of its 1975-90 civil war.
Salameh said while the IMF was predicting growth of 2-3 percent for 2017, the impact of the political situation was as yet unclear.
He has steered the central bank for almost 24 years but his term of office expires in August. Banking figures have called for him to stay to send a message of stability to markets. He told Reuters the government has not yet decided if his term was to be extended.
REUTERS