Qatar cuts interest rates

Qatar's central bank slashed key interest rates by at least 50 basis points on Tuesday for the first time since August, in a move that analysts said was aimed at boosting domestic lending and reducing capital inflows.

The cuts, which brought the main overnight deposit rate to 1.0 per cent from 1.5 per cent, follows a January policy measure that limited the amount of money banks could earn interest on with the central bank.

The overnight lending facility and the repo rate were both cut to 5.0 per cent from the original 5.5 per cent and 5.55 per cent, respectively, the website showed.

The central bank did not give reasons for the cuts.

"They want to discourage more hot money from coming into the country and they don't want local banks to leave large surplus amounts in their reserve accounts with Central Bank and earn a decent return on the reserve cash at the same time," said Farah Ahmed Hersi, senior economist at Masraf Al Rayan in Doha.

"Instead, they want the banks to lend out this excess cash to the private sector in order to help induce private credit sector growth."

Qatar, the world's largest liquefied natural gas exporter, last changed its policy settings in August when it trimmed its deposit rate by 50 basis points but left other rates unchanged.

In January, the central bank capped liquidity volumes it was willing to absorb from banks, giving them an incentive to pour excess cash into a 50 billion riyal ($14 billion) government bond also on offer. The January move pushed riyal currency forwards to two-year lows.

Forward dip

On Tuesday, Qatari one-year currency forwards fell to -50/-10 points after the central bank rate cut, from Monday's close of -25, one trader said.

"We've seen the swaps react to the cut by moving lower," said Lyndon Loos, head of forex trading for Middle East and North Africa at Standard Chartered in Dubai.

The dip in forward rates implies bets on a stronger riyal over the next 12 months.

Qatar, like most Gulf Arab oil exporters, pegs its currency to the dollar, which limits the central bank's flexibility to move far from the US benchmark rate as that could trigger larger capital flows and put the peg under pressure. The peg is set at 3.64 to the dollar.

Qatar's economy is expected to surge 15.8 per cent in real terms this year, one of the fastest growth rates in the world, benefiting from recent gas output expansion, a 19 per cent rise in government spending and robust crude prices of over $100 per barrel.

Liabilities of Qatari banks to their foreign counterparts stood at 96.7 billion riyals in February, below at least a two-year high of 101.7 billion in November, central bank data show. At the same time, private sector credit rose by 7.9 per cent year-on-year in February, a five-month high, but still well below double-digit rates of over 20-40 per cent seen in the first half of 2009.