Central Bank Cuts Rates to Ease Lebanon's Crisis

W300

Lebanon's central bank Thursday told commercial banks to lower interest rates on dollar and Lebanese pound deposits in the latest attempt to ease the country's worst financial crisis in decades.

The central bank imposed a temporary interest cap of 4 percent on dollar deposits and 7.5 percent on Lebanese pound deposits, according to a circular seen by AFP.

It was the second time in two months that the central bank has taken such a measure.

Earlier in December, it capped interest rates on dollar and local currency deposits at 5 and 8.5 percent respectively.

The latest reduction comes weeks after Finance Minister Ghazi Wazni called for slashed rates to "spur economic activity and to ease pressure on public finances."

A banking source close to the matter said the latest central bank measure was part "of a more comprehensive economic rescue plan."

The source asked not to be named because he is not authorized to speak on the issue.

Prime Minister Hassan Diab has said his cabinet would draw up an emergency rescue plan for the country by the end of the month.

The crisis-hit country has debt-to-GDP ratio of more than 150 percent, one of the highest in the world.

It is currently in the throes of a severe economic meltdown and a biting liquidity crunch that has seen banks impose stringent controls on withdrawals and transfers abroad.

Credit rating agencies and economists have warned of dwindling foreign currency reserves that have plummeted in recent months, threatening import payments and a devaluation of the Lebanese pound.

The local currency has lost a third of its value on the black market.

Comments 8
Thumb ex-fpm 5 days

The latest reduction comes weeks after Finance Minister Ghazi Wazni called for slashed rates to "spur economic activity and to ease pressure on public finances."

This is another veiled attempt by the corrupt ruling class to rob people of their money. How does slashing interest rates spur economic growth when Banks are not allowing people to withdraw more than $200 per week let alone shell out loans to businesses and individuals.

The move is meant to reduce government and bank's debt and nothing more.

Thumb barrymore 5 days

@ex-fpm

Remember the banks are still getting their 15-25% rates on the money they lent the government through the Central Bank BDL:) This is nothing short of a scam.

Thumb s.o.s 4 days

whats the interest rate when someone is overdraft?
I for instance wish to close all my bank accounts and take my dollars out of the system. Shouldn’t I be able to charge the bank similar interest rates to when a customer is not paying back his debt?

Doesn’t it make sense?

Missing samiam 4 days

I don't understand why they are doing this. The problem is liquidity---there isn't enough money in Lebanon for things to happen AND just as importantly, banks are imposing capital controls because they aren't getting any new money. Lowering the interest rates on people's deposits won't exact invite more people to put money into banks.

I guess the central bank is thinking that by lowering rates it will be an incentive for people to borrow money, buy new things and start new businesses. Here's the problem, banks don't want to lend money right now--they are trying to clamp down on people taking out money so they can survive. They won't be actively trying to have people take out loans they may not be able to pay back.

Maybe they should move on to things that actually make sense.

Missing Geralt 4 days

Our beloved country is heading to a Venezuelan scenario when not only chicken eaters (ISF) will be stationed on the door of banks but also on supermarkets and minimarkets to protect them from hungry civilians and angry people.

Missing Geralt 4 days

Our beloved country is heading to a Venezuelan scenario when not only chicken eaters (ISF) will be stationed on the door of banks but also on supermarkets and minimarkets to protect them from hungry civilians and angry people.

Thumb thepatriot 4 days

Yes, i am sorry to say we have seen nothing yet!
The banks are not generating any profits any more. They are not lending money. There are no projects. And Interest rate is so high that it is not viable.
So banks have to cut short on the interest rates. They probably are borrowing much less Treasury Bonds as well, that pay much lower fees.
Where are the banks supposed to make profits from?
Banks have been feeding on the state (Central Bank)for decades... this is the main reason why they have been showing arrogant profits for years & years... Giving us a percentage, then landing our money to the state for a higher fee... This s not Banking, it is mafia.

Thumb thepatriot 4 days

In a country with no Industrial ressources, no natural ressources (don't get me starting on the gas/oil, this is not gonna be profitable in the next decade), no tourism, no infrastructure, no economical dynamic, no foreign investments, there is simply NO WAY we can make up for the gap of our debt.
This country is simply not sustainable.
There will be a hair cut, a higher devaluation, poverty, and this will lead to a greater chaos...
Brace yourselves.
The only 2 solutions are political.
1- Ebola disarms: this will encourage the help of Europe, USA, and friendly Arab Nations, as well as investments of the diaspora and foreigners.
2- We divide the country into a confederation. Like the Emirates for example. Each Canton or mini state can administer its land as it sees fit. One can be helped by Iran, the other by the USA, etc...