(Bloomberg) --
Lebanese central bank Governor Riad Salameh attributed the recent hike in demand for dollars to increased imports and affirmed the country's commitment to its decades-old currency peg.
Speaking on Thursday, Salameh said this week's central bank circular that aims to ensure dollar supplies to banks to cover demand from importers in vital industries “is essential for social stability and to avoid creating further chaos.”
Lebanese Peg That's Held Up for Over Two Decades Is Under Siege
The governor, who's been at the helm of the central bank since 1993, said it would repay maturing debt in dollars. Lebanon has a $1.5 billion Eurobond due in November.
“This is necessary and the central bank is doing it for monetary reasons to protect Lebanon's credibility and capabilities to finance its economy,” he said.
Read more: Morgan Stanley Sees Lebanon Buying Bonds as Deposit Growth Slows
Lebanese importers of fuel and wheat have warned of shortages if the government failed to supply them with enough dollars to pay their bills. For months, banks weren't meeting their demand, forcing many to swap Lebanese pounds at higher rates at money changers. Local lenders now can buy dollars from the central bank and supply importers of fuel, wheat and pharmaceuticals.
Salameh said the divergence in the exchange rate was between 1% and 3% of the fixed price at banks. Money changers were trading dollars for as much as 1,580 pounds. Lebanon pegged its pound to the dollar at 1,507.5 more than two decades ago.
Lebanon's government is scrambling to implement reforms needed to unlock billions in international aid to revive the stagnant economy. Compounding weaker growth of bank deposits -- a key source for government funding -- is a current-account deficit that the International Monetary Fund expects to reach almost 30% of gross domestic product by the end of this year.
Salameh said he hoped that the government's 2020 budget would go some way to send a "positive signal" to markets.
The governor also questioned if all the imports entering Lebanon were for domestic consumption. Local media have reported that traders were smuggling imported goods to Syria and that some were even withdrawing their money in dollars and illegally sending it to the neighboring war-torn country.
To contact the reporter on this story: Dana Khraiche in Beirut at dkhraiche@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Paul Abelsky, Michael Gunn
©2019 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
