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05 December 2019

Lebanon cuts interest rates to ease crisis engulfing the economy

Lebanon is facing its worst financial crisis in decades amid nationwide unrest that is toppled a government and raised investor concern that the country, one of the most indebted in the world, might struggle to pay bondholders.

Bloomberg/Sima Diab

Banque du Liban (BdL) has imposed a temporary interest-rate cap of five per cent on dollar-denominated bank deposits and 8.5 per cent on local-currency deposits received or renewed after 4 December 2019, reported Bloomberg.

The Lebanese central bank said that the decision must be reflected in the pricing of benchmark lending rates by local banks. BdL took emergency measures in an attempt to ease the worst financial crisis hitting the country in decades.

The central bank also said it would temporarily pay 50 per cent of the interest it owed banks for dollar deposits and dollar-denominated certificates of deposits in Lebanese pounds and the measures will be in place for six months.

Lebanese banks have already imposed a ban on transfers of money abroad and a strict cap on cash withdrawals in dollars. As it seeks to preserve its dwindling stockpile of foreign currency, the central bank is rationing supplies of dollars to cover the import of fuel, pharmaceuticals and wheat.

A parallel exchange rate surfaced after the shortage of dollars forced importers to turn to money changers for cash to finance their shipments. BdL is also considering issuing a circular that would formalise the restrictions set by banks primarily the ban on money transfers.


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