Central Bank buys
$2 billion in Treasury bills

Terms are at one percent rate

despite IMF warning

The Central Bank (BDL) has subscribed to Treasury bills denominated in lira worth LL3,000 billion ($2 billion).

The T-bills were bought from the Ministry of Finance (MoF) at an interest rate of one percent, according to Bloomberg. BDL is likely to buy additional T-bills worth half this amount at the same rate by the end of 2019. The current primary market rate on 12-month T-bills is 6.5 percent.

The Central Bank’s share in outstanding T-bills increased to $29.3 billion at the end of September or 54 percent of the total from 45 percent three years earlier.

In November, BDL subscribed to $3 billion of Eurobonds issued by the MoF at an interest rate of 12 percent.

BDL decided earlier this month to cut interest rates by half. It set a maximum interest rate of five percent that the banks must pay on deposits in foreign currencies. The ceiling for the rate on deposits in lira was set at 8.5 percent.

The International Monetary Fund (IMF) said in a report on Lebanon released in October that it commended an earlier BDL decision not to buy T-bills at one percent interest rate. The IMF said: “BDL should step back from government bond purchases and providing other financing facilities including a zero-interest overdraft facility and bridge financing, and let the market determine yields on government debt.” It said: “BDL should gradually step back from quasi-fiscal operations and strengthen its balance sheet.”

Public debt has escalated to $87.1 billion at the end of October.

In related news, the credit rating agency Moody’s Investors Service said Lebanon’s request for assistance from the IMF and the World Bank is credit positive and reduces the risk of extreme macroeconomic instability.

"If granted, access to external support limits losses for private investors compared with a no policy change scenario involving a destabilization of the currency peg and/or a disorderly default," Moody’s said.

Moody’s statement came after Caretaker Prime Minister Saad Hariri contacted the IMF and World Bank for possible technical assistance to help the government prepare an urgent rescue plan. Hariri had also discussed with the World Bank the possibility that its private sector investment arm, the International Finance Corporation (IFC), would increase its contributions to finance the country’s international trade, especially imports.