Thursday, June 15, 2017

Qatar raises depo rate, not lending rate, after Fed move

      Qatar's central bank raised its deposit rate but maintained its lending rate the day after the U.S. Federal Reserve increased its benchmark rate, the federal funds rate, by 25 basis points.
      Like other members of the Gulf Cooperation Council (GCC) and Hong Kong, the Qatar Central Bank (QCB) pegs its currency, the riyal, to the U.S. dollar but doesn't always tracks changes to U.S. rates.
      In December 2015 the Fed changed its fed funds rate for the first time since the global financial crises but two months prior to that, on Oct. 4, the governor of the Qatar central bank ruled out an interest hike in the event of a U.S. hike, saying the conditions of the Qatari banking system were characterized by high liquidity and the liquidity ratio provided by the central bank to local banks excluded raising the rate.
      In December 2016 when the Fed raised its rate for the second time in the current tightening cycle, QCB followed suit and raised both its deposit (QMRD) and lending rates (QMRL) by 25 basis points to 1.0 percent and 4.75 percent, respectively.
      In March 2017, when the Fed raised its rate for the third time, the QCB also followed suit and raised its deposit rate to 1.25 percent and the lending rate to 5.0 percent. However, the required reserve ratio was lowered by 25 basis points to 4.50 percent.
      Today the QCB said it raised its deposit rate by 25 basis points to 1.50 percent but the lending rate and repo rates were left unchanged.
       Yesterday the central banks of Saudi Arabia, the UAE and Bahrain, countries that also peg their currencies to the U.S. dollar, raised their rates by 25 basis points while Kuwait, which pegs its currency to a basket of currencies, left its key rate steady. Hong Kong, which pegs its dollar to the U.S. dollar, also raised its base rate by 25 basis points.
        Qatar is currently embroiled in a diplomatic crises with Saudi Arabia, the UAE, Bahrain and Egypt over policy toward Iran and terrorism, and there have been press reports that some Qatari banks have raised their deposit rates to attract dollars from other regional banks.
        Earlier this week, on June 13, the governor of QCB, Sheikh Abdullah bin Saud Al-Thani, said in a statement that Qatar's banking system was functioning normally and the central bank has sufficient foreign currency reserves to meet all requirements.
     He added liquidity in Qatar's banking system remains strong and the country's banks have extensive international presence that gives them flexibility to carry out all banking transactions, whether domestic or international.



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