Lebanon's BDL cuts interest rates on mandatory reserves and financial engineering to 0%

This step came at a time when the Lebanese government and the Central Bank are holding direct talks with the International Monetary Fund

  
Buildings are seen in Beirut, Lebanon September 26, 2018.

Buildings are seen in Beirut, Lebanon September 26, 2018.

REUTERS/Jamal Saidi

BEIRUT: The Central Bank slashed the interest rates to zero percent on the banks’ mandatory reserves and on the financial engineering transactions.

BDL’s website carried a screen shot of it decision to cut the interest rates on the mandatory reserves but did not yet carry the decision to slash the interest rates to zero percent on the financial engineering transactions.

But a source has confirmed that BDL’s board of directors took these decisions Wednesday.

This step came at a time when the Lebanese government and the Central Bank are holding direct talks with the International Monetary Fund in a bid to seek financial assistance from the fund based on the Cabinet’s economic paper which calls for restructuring the public debt, the Central Bank and the banking sector.

A leading banker told The Daily Star that Governor Riad Salameh did not inform a delegation from the Association of Banks in Lebanon about this decision.

“We had a meeting with the governor Tuesday but he didn’t tell us anything about this decision. But the next day we read this news on BDL’s website,” the banker said.

It is not clear whether the newly appointed vice governors had anything to do with this decision.

The banker said the interest rates on mandatory reserves worldwide are close to zero percent anyway and even LIBOR (London Inter-bank Offered Rate) is close to zero percent.

“But it is not yet clear whether the reduction on interest rates on mandatory deposits applies to new deposits or only old deposits. As for the financial engineering transactions, we need to know what type of financial engineering BDL is referring to,” he added.

The banker said he could not comment on the issue of cutting the interest rates on financial engineering transactions until BDL explained the reasons behind the move.

Meanwhile, the Association of Banks said it had cut the interest rate on lending (Beirut Reference Rate) to 4.53 percent and kept the lending rate on the pound at 7.75 percent.

The decision came after a meeting between the association and Salameh Tuesday.

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