Newly issued public debt yields to market conditions. Interest rate on ten-year bills to rise three percentage points

Newly issued public debt
yields to market conditions
Interest rate on ten-year bills

to rise three percentage points

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The Central Bank (BDL) and the Ministry of Finance (MoF) have agreed to finance the State in 2019 through the banking sector at interest rates currently prevalent on the market, said Riad Salameh, Governor of BDL.

Interest rate on ten-year treasury bills will be raised to 10.5 percent. The yield on such bills was 7.46 percent at the end of September.

The Central Bank used to channel low-cost lending from banks to the State through swap operations. BDL was allowing banks to earn generous interest rates in order to encourage them to participate in funding the State while the Central Bank itself was subscribing to public debt instruments at low interest rates. BDL was thus shouldering the cost resulting from the difference in interest rates.

According to Salameh, BDL is likely to reach an agreement with banks to convert their outstanding lira deposits with BDL into treasury bills in the local currency at market rates.

He said that the new plan agreed upon by BDL and MoF will attract funding to the State’s bond issues.

“Managing the settlement of the State’s external and domestic debts is within our capabilities and within the means of the banking sector, which were built up through the financial engineering operations that we carried out over the last three years. So the situation will always be stable in Lebanon whether at the level of the lira or credit,” Salameh said.

Gross public debt stood at $83.8 billion at the end of September, 58 percent of which was domestic debt.
Reported by Shikrallah Nakhoul
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Date Posted: Dec 05, 2018