Qatar cuts overnight deposit rate by 50 bps

Qatar's central bank has cut its overnight deposit rate by 50 basis points, the first change in two years, sources said, adding the move probably aimed to boost the non-oil economy and curb capital inflows.

The cut brings the rate on overnight deposits which commercial banks place with the central bank down to 1.5 per cent.

"It (the new rate) is in the clearing system," said a source who did not wish to be identified. "There is still interest in Qatar. They probably wanted to control hot money coming in ... lower the cost of funding."

Central bank officials would not confirm the move, saying any rate change would be announced, and the central bank's website still showed the rate at 2.0 per cent.

"I do not have any knowledge that the interest rate was cut, therefore I cannot confirm it," Khalid Al Khalter, head of the central bank's research and monetary policy department, told Reuters.

Central bank officials in Qatar rarely discuss policy with the public and many policy decisions are not immediately announced.

The Gulf state, the world's largest liquefied natural gas exporter, had kept its main rates unchanged since May 2008 despite the global financial crisis.

Qatar's economy is expected to surge 16.1 per cent in real terms this year, faster than any other Gulf oil exporter, mainly due to gas output expansion and generous infrastructure spending. Inflation is expected to be tame with consumer prices forecast to rise 1.7 per cent this year after falling 4.9 per cent in 2009.

Government-driven expansion of gas facilities, however, is coming to an end and there is a need to support the non-oil sector, analysts said.

"They cut the overnight deposit facility by 50 basis points to 1.5 per cent, other rates remained unchanged," said a banking source.

Analysts said the rate cut could support the non-oil private sector by encouraging banks to lend more freely to companies, provided that corporate demand for loans was strong enough.

"Lowering the lending rate will boost the economy by reducing the cost of funds, allowing banks and investors to borrow more," said the chief executive officer of a Doha-based bank.

"It will help the stock market as well, as the yield on the stock market will be higher than the deposit rate. People will start investing more money into the stock market."

Deposit rates of Qatar's commercial banks should also fall from May's average 3.2 per cent for one year, making it less attractive for investors to place their money in the country.

The cash-rich state issued QR12 billion ($3.30bn) worth of domestic bonds in June to pool excess liquidity in the banking system, aiming to launch the local debt market and diversify funding away from the dollar.

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