Tuesday, October 28, 2008

Inflation to Drop Says Central Bank Gov

The Dailystar reports:
Banque du Liban Governor Riad Salameh predicted Friday that inflation in Lebanon would fall by six percentage points in the coming few months due to the sharp drop in the price of oil...

...Three months ago, Salameh estimated the domestic inflation rate at between 13 percent and 14 percent, when oil was still over $100 a barrel. On Friday, the price of a barrel of oil fell to less than $63 despite a decision by the Organization of Petroleum Exporting Countries to slash output by 1.5 million barrels a day.

Retail prices for gasoline and fuel oil in Lebanon, which are set by the state, have fallen four times this month...

...Since 1994, the Central Bank has intervened to limit fluctuation of the local currency against the dollar. The Lebanese pound is still trading at an average of LL1,507 to the US dollar. Some economists had advised Salameh to set the pound at LL1,000 instead.

Salameh stressed that the Central Bank and the Finance Ministry had agreed to maintain the current rate, although he acknowledged that demand for the local currency grew considerably in the past few months...

...Nearly 74 percent of total bank deposits in Lebanon are in US dollars, but the Central Bank has said that many depositors have been shifting to the local currency following the credit crisis in the Unites States...

...He reminded reporters that interest rates on loans had fallen by between six and seven percentage points on foreign currencies and by between eight and nine points on the local currency in recent years.

Local interest rates fell sharply after the Paris II meeting in November 2002, when donor states injected $4.3 billion in soft loans and grants into the Lebanese market.

Salameh reiterated that the Central Bank has sufficient tools to help the government refinance the maturing bonds and Eurobonds in 2009.

"The maturing Eurobonds in foreign currencies is close to $3.6 billion. The high liquidity in the Lebanese banks will enable the government to meet all its dues next year," he said.

Salameh added that Lebanon managed to record a surplus of $2 billion in the balance of trade recently.

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