Lebanon’s Central Bank caps parallel exchange rate

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The central bank said foreign currency dealers should refrain from any trade contrary to the circular. The decision applies for six months.

by Georgi Azar -Source: Annahar

BEIRUT: Lebanon’s Central Bank has capped the buying rate of US dollars at foreign exchange brokers at up to 30 percent of the official rate of 1,500 lira to the dollar, according to a circular issued Friday.

This would put the buying price at around 2000 LBP to the dollar while selling prices were left uncapped. On Thursday, exchange rates exceeded LL2,600, signaling a historic low for the Lebanese currency since it was pegged to the dollar in the mid-’90s.

Experts warn that the decision will give birth to a third parallel black market rate, with the rate further sliding amid a shortage in dollar supply. “Individuals holding U.S dollars, mainly through income from abroad, will not sell at that price amid a widening spread,” a banker told Annahar.

“Most dealers are already hoarding dollars expecting another hike in prices down the run,” he said, adding that the dollar shortage might take a turn for the worse.

The central bank said foreign currency dealers should refrain from any trade contrary to the circular. The decision applies for six months.

This marks the second attempt since January to control the price being paid for hard currency by foreign exchange dealers after an agreement between Lebanon’s union of exchange dealers and the central bank failed to hold.

The union said in January it had decided to set the rate at a maximum of 2,000 Lebanese pounds to the dollar in a verbal agreement with the central bank governor.

The decision comes at the heels of a judicial tug of war that took Lebanon’s banks by storm, further piling pressure on the fledgling sector.

Hours after Lebanon’s Financial Prosecutor issued an order to freeze the assets of 20 local banks, the State Prosecutor suspended his decision with the case entering the legal pipeline.

The decision had frozen the assets of 20 banks and the properties of their CEOs and board members.

State Prosecutor Ghassan Oueidat warned that “it would further destabilize Lebanon’s fragile economic state and lead to chaos,” adding international financial authorities had also intended to halt dealings with Lebanese banks, without elaborating further.

Experts had alluded to the decision to target banks as being politically motivated in an attempt by some to pit Lebanon’s unprecedented economic crisis solely on the banking sector.

A tug of war has pitted Lebanese institutions and authorities against one another as the March 9 Eurobond payment approaches. No official decision has been taken yet, with the government undecided on whether it should repay $1.2 billion of Eurobonds maturing on Monday or default for the first time in its history.

Prime Minister Hassan Diab’s newly formed Cabinet will convene on Saturday before announcing a decision at 6 pm.

The government is being advised financially by Lazard Ltd. and legally by Cleary Gottlieb Steen & Hamilton and has focused negotiations mainly on local lenders.

It has attempted to convince local banks to buy back Eurobonds that it recently sold to foreign investors or swapping into new notes with lower coupons.

 

 

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