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Beirut: Lebanon's central bank governor Riad Salameh said on Thursday the economy should grow more than the 3 per cent predicted by the International Monetary Fund (IMF) this year thanks to an agreement ending the country's deep political crisis.
Salameh also said that the deal signed in Qatar on Wednesday had triggered strong offering of dollars in the foreign exchange market, a narrowing of spreads on Lebanese government debt and a stock market surge.
"I call it a correction because the pricing of the paper assets of Lebanon was oversold," Salameh said.
The spread between yields on five-year Republic of Lebanon Eurobonds and the equivalent US instrument had narrowed by 50 basis points in the past 48 hours, he said.
Rates
The central bank would reduce interest rates on its five-year certificates of deposit "according to what is happening in the market", he said. "We are watching the markets to see where they are going to stabilise and (then will) adjust accordingly. Meanwhile we are not issuing," he said.
"On other periods, which are the short-term rates, or the discount rates at the central bank, we are keeping them stable," he said.
"We believe that the external pressures on prices warrant keeping a stable interest rate structure."
Inflation for the year to the end of April ranged between 10 and 12 per cent, he said, driven by factors including high oil prices. "Because there is a lot of volatility. One cannot give a definite figure," Salameh said.
The agreement among rival Lebanese leaders ended a political conflict that had paralysed government for 18 months, left the country without a president since November and triggered Lebanon's worst civil strife since the 1975-90 war.
The political instability, assassinations, a war with Israel in 2006 and an armed militant insurrection in 2007 has denied Lebanon the full benefits of a regional economic boom, Lebanese policy makers say. The economy grew around 4 per cent in 2007.
"The growth rate, which was expected by the IMF to be around 3 per cent, should be higher given the fact that the consumer market, the consumption sector and the tourism sector should witness better activity," Salameh said.
Increased confidence after the deal was reflected in the foreign exchange market, where dollars were being offered "strongly", he said. The exchange rate would be kept stable at 1,507.5 Lebanese pounds to the greenback, he added.
"The dollarisation of deposits at commercial banks was around 77.5 per cent prior to this agreement. So that level could decline if the offer of dollars continues," he said.
A surge in the stock market to life-time records in the past 48 hours "should witness a correction", he said. "But I don't think it is just a blip and that values will remain higher than the levels at which they were prior to the agreement."
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