Bank Chiefs Support Retaining Strong Lebanese Pound

October 14, 2000 - 0:0
BEIRUT Lebanon's banks expressed their support on Friday for the Central Bank's longstanding policy of maintaining a strong currency which has been under growing pressure with the political deterioration in the Middle East.
Makram Sader, secretary general of the Banks Association, told Reuters that banking chiefs informed Banque du Liban Governor Riad Salameh they would continue subscribing for Lebanese treasury bills despite renewed tensions with Israel and worsening state finances.
"There is nothing that would call for abandoning a stable pound, an entrenched nine-year old policy," Sader said.
"We are convinced that devaluation would solve nothing. It has no rationale, a thinking that reflects false economy. It is not on the table," Sader added.
Banks hold most of Lebanon's $21 million public debt, 75 percent of which is financed by Lebanese pound treasury bills carrying a benchmark interest rate of 14 percent. The bonds account for the majority of profits in the banking sector.
Citing Central Bank figures of 2,000 billion pounds ($1.3 billion) pounds of T-bills that were renewed in the past few week, Sader said banks were comfortable with the commitment of the Central Bank to defend the currency and shared its conviction that a transition of power to a new government would go smoothly this month.
He said the current interest rates level was just right and the Central Bank showed no inclination to raise it.
The Central Bank is estimated to have spent around $170 million defending the currency this week after Israel and Lebanon exchanged belligerent threats and violence in the West Bank, Gaza and Israel reached its highest level in years.
The pound, which trades between banks at 1,514 to the dollar, has been at this level for over a year. It had been steadily strengthening against the dollar before that.
Banque du Liban has been almost the only source of dollars on the market for the past seven weeks as uncertainty about the identity of the next premier and a budget deficit that reached 51 percent of spending prompted depositors to switch to dollars.
The recent tensions added to existing nervousness.
Overnight interbank rates more than doubled on Wednesday on fears of the strength of the pound, but fell back the following day.