The Central Bank is buying dollars. Impact of crisis was limited and market is stable - Lebanon

The Central Bank
is buying dollars
Impact of crisis was

limited and market is stable

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The Central Bank (BDL) intervened to support the lira after the resignation of Prime Minister Saad Hariri but the market has reversed and BDL is now buying dollars, BDL Governor Riad Salameh said, according to Reuters.

The turnaround came following Hariri’s return to Lebanon and his decision to put his resignation on hold. These developments also triggered a rebound of the Eurobond prices on the global markets. The price of Solidere shares on the Beirut Stock Exchange also recovered after its sharp fall immediately after the resignation.

Salameh said that BDL data shows that the impact of the latest political crisis on the monetary market was limited and that the market is now stable.

He said there was a cost to maintaining the peg of the lira against the dollar, but that BDL was already prepared. The Central Bank does not usually disclose such costs. BDL supports the dollar peg by selling US currency when demand increases following a negative event and buying it back when positive developments happen and people are encouraged to sell dollars.

The banks had also contributed to upholding the Lebanese currency by making a tacit agreement between themselves to raise interest rates on lira deposits.

Early last week Salameh said that following the resignation, $800 million has been withdrawn out of a maximum of $3 billion of ‘hot money’ that Lebanon usually has in the system at any time. He said that this showed the resilience of the country’s financial market. ‘Hot money’ is the flow of funds that moves quickly and continuously between financial markets to allow investors to earn the highest interest rate available or to profit from anticipated shifts in exchange rates.
Reported by Shikrallah Nakhoul
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Date Posted: Nov 24, 2017