Salameh: stable monetary situation may lead to lower interest in 2009
Central bank Governor Riad Salameh said Tuesday that interest rates in Lebanon may fall in 2009 if the monetary situation is more relaxed.
"We are expecting rates to be stable, they definitely won”t go up. Perhaps, if there is monetary relaxation, there might be some decrease in 2009, in addition to the reduction we have seen recently," Salameh said during a news conference.
The governor made these remarks during a news conference to announce the "Arab Economic Forum for Business" which will be held in Beirut on February 4 and 5.
"We are confident that in 2009 the exchange rate of the [Lebanese] pound will be stable," he said. "We witnessed, in the first days of this year, heavy offering of dollars to buy Lebanese lira. This continues in the markets," Salameh said.
Underlining confidence in the currency”s stability, increased deposits at Lebanese banks had been converted into the local currency, he said. "Our expectations are that there will be a further retreat in dollarization."
The authorities were working on steps to stimulate lending in Lebanese pounds, he added, describing such a shift as "a qualitative step" that would give a bigger role to monetary policy in stimulating the economy.
Lebanon”s Finance Ministry had also asked local and international banks to make proposals for terms to rollover $2.6 billion of Lebanese Eurobonds that are due to mature in 2009, he added.
The banks had been asked to submit their proposals, including details of maturity dates and interest rates, by January 15, he said, adding the replacement issue would take place in one hit."
Measured against gross domestic product, Lebanon”s public debt burden, $47 billion at the end of 2008, is one of the largest in the world. Around half of it is held in foreign currency.
Salameh said "a number of banks" had shown a readiness to take part in the replacement. "I think the international rating agencies will have a more positive view when they know there are no longer any maturities for the state in foreign currency in 2009," he said.
The central bank”s reserves stood at $20 billion at the end of 2009, he said. Real economic growth for 2008 was above 6 percent and average inflation for the year was between 8 and 10 percent, he added.
Salameh said the central bank intends to submit a proposal to subsidize interest rates and offer more exemptions on the obligatory reserves ( the deposits that are required by the commercial banks to deposit in the central bank).
He added that these measures will lead to a drop in the cost of borrowing, especially in the Lebanese pound.