Lebanon's central bank governor said foreign currency reserves were stable and did not require immediate boosting via intervention, but the bank would take measures to maintain monetary stability if necessary. Governor Riad Salameh's term of office expires at the start of August and the Lebanese finance minister has asked cabinet to extend it, a Lebanese government source told Reuters on Monday.
Salameh has steered the central bank for almost 24 years and is widely seen as a guarantor of monetary stability. Under his leadership the central bank last year carried out what the International Monetary Fund termed "unconventional" financial engineering to boost falling foreign currency reserves.
"Today we have a situation that is stable which doesn't warrant any special operations," governor Riad Salameh told Reuters on the sidelines of a Euromoney conference in Beirut on Monday. "Depending on what would be necessary, we have various strategies we can implement, it is not essential that we go back to the same strategy we used in 2016."
Between June and August, the central bank exchanged some of its Lebanese pound-denominated debt holdings for dollar-denominated Finance Ministry Eurobonds, while private banks transferred in dollars and were given the Eurobonds and newly issued dollar certificates of deposit in exchange. The central bank also bought pound-denominated bonds held on local banks' books for the full principal amount plus interest up to maturity, instantly boosting their local currency reserves.
By mid-October reserves had risen to $41 billion from around $35 billion before the financial operations. Since then they have declined again and on 30 April stood at $39.3 billion, according to the latest central bank figures. Salameh said there was currently no need for "immediate special initiatives." Lebanon's economy has for years been hindered by regional unrest, including the war in neighbouring Syria, and political crisis at home.
The IMF said its GDP increased by 1 percent in 2015 and projected a similar rate for 2016, compared with a potential growth rate of 4 percent. Public debt stood at 138 percent of GDP in 2015. Salameh said the appointment of President Michel Aoun after a two-and-a-half-year period without a president, and the formation of a government with Saad al-Hariri as prime minister late last year has created a basis for better growth, Salameh said.
But Lebanon is on the brink of crisis again with its politicians at odds over an election law at the heart of the nation's sectarian system, threatening to leave the country without a parliament for the first time. Parliament's term expires on June 20 and without a compromise Lebanon faces what one minister has called the most serious political crisis since the end of its 1975-90 civil war.
Salameh said while the IMF was predicting growth of 2-3 percent for 2017, the impact of the political situation was as yet unclear. Salameh has been in his post since 1993 and banking figures have called for his term of office to be extended past August to send a message of stability to markets. He told Reuters the government had not yet decided if his term was to be extended, but a government source said it was likely.
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