T-bills’ interests up

5.33 percent on one-year, 5.85 percent on two-year, 6.5 percent on three-year bills

The Central Bank has raised interest rates on newly issued lira-denominated debt, upon the recommendations of the International Monetary Fund (IMF) and at the request of the Association of Banks in Lebanon (ABL).

Thus the new interest rates are: 5.33 percent on one-year T-bills (up from 4.85 percent), 5.85 percent on two-year bills (up from 5.35 percent), and 6.5 percent on three-year bills (up from 5.95).

During its latest monthly meeting with the Governor of the Central Bank, Riad Salameh, the ABL said that banks were losing between 1.6 and 1.8 percent when underwriting in T-bills. The ABL said that the interest rates which banks give on lira deposits are higher than the rates they get on T-bills (adding to operational costs). This is the primary reason behind the private banking sector having refrained from buying lira-denominated debt bills.

The average rate on local currency deposits was 5.63 percent at the end of December 2011. Meanwhile, interest rates on T-bills of maturity 24 months, 36 months, and 60 months were 5.27, 5.85, and 6.09 percent respectively (at end December).

The IMF had also recommended raising interest rates on lira-denominated debt. In its Article IV Consultation earlier this year, the IMF said that raising interest rates on T-bills with maturities of less than seven years would compensate for higher risks, thus making the bills more attractive to banks. This, it said, will allow the treasury to reduce its reliance on the Central Bank and on the seven-year T-bills.
reported by Hanadi Chami