The market is demanding lira signaling start of turnaround. Boost to savings in the national currency - Lebanon

The market is demanding lira
signaling start of turnaround
Boost to savings in the national currency
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Since the formation of the new Cabinet, U.S. dollars are being offered on the local market to buy liras, according to Governor of the Central Bank Riad Salameh.

“This strengthens again the role of the Lebanese currency as a vehicle for savings,” Salameh said.

Marwan Barakat, Chief Economist and Head of Research at the Bank Audi group, said that the market is more relaxed as demand for liras is greater than demand for dollars.

The market perception of the country’s sovereign risk has improved significantly with the five-year Credit Default Swap (CDS) falling to 710 basis points (bps) after the cabinet formation from 900 bps two weeks ago, Barakat said. CDS prices reveal the cost of insuring the sovereign debt.

Another indicator of the turnaround, according to Barakat, is the drop in the average yield on the outstanding Lebanese sovereign Eurobonds. This average fell to 9.2 percent on Monday from 12 percent two weeks ago. News of the Cabinet formation had immediately triggered a surge in the prices of the dollar-denominated bonds on global markets.

According to the credit rating agency Moody’s, the Cabinet formation is positive for Lebanon’s credit rating, as it is likely to help unlock the $11 billion pledged at the CEDRE donor conference.

Barakat said that further market improvements are contingent on the government’s commitment to fiscal adjustment and reforms.
Reported by Shikrallah Nakhoul
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Date Posted: Feb 05, 2019