Lebanon c.bank says selling govt bonds to boost liquidity

Reuters

ABU DHABI, Sept 29 (Reuters) - Lebanon's central bank hasbeen selling some of its holdings of international bonds issuedby the Lebanese government to improve its foreign currencyliquidity, central bank governor Riad Salameh said on Sunday.

"The central bank has sold from its own portfolio theequivalent of $5 billion this year. During the month ofSeptember alone we sold $1.1 billion," he told reporters on thesidelines of an Arab central bankers' meeting in Abu Dhabi.

"These are Republic of Lebanon Eurobonds that the centralbank was carrying in its portfolio. We liquidated that toimprove the quality of our balance sheet in terms of improvingliquidity in foreign currency."

He did not elaborate on the sales of Lebanese bond holdings.The central bank held 25.45 trillion Lebanese pounds ($16.9billion) worth of securities in July, down from a peak of 26.92trillion pounds in April, according to central bank data.

The yield on Lebanon's $650 million bond maturing in 2019 is up 52 basis points since late May to 6.27percent, outperforming the bonds of many emerging marketeconomies. Lebanese commercial banks are often keen buyers ofLebanese government debt offered in the secondary market.

Lebanon's economy has suffered over the past two years asthe civil war in neighbouring Syria has caused capital inflowsto dry up, although the total size of its foreign reserves hasheld up and there does not appear to have been heavy pressure onits currency peg to the U.S. dollar.

On Lebanon's foreign exchange reserves, Salameh said: "Weare running over $36 billion of liquid foreign assets. Gold isevaluated around $16 billion....We have improved from last yearin terms of liquidity."

Maintaining ample deposits in the banking sector is key tokeeping the government funded, since the banks use some of thosedeposits to buy state debt. Salameh said: "Total deposits in thebanking sector have grown by 8 percent - it is essentiallydriven by a non-resident increase in deposits.

"Last year, we ended up with a 7 percent growth," he added.

Salameh said the central bank's expectation of 2.0-2.5percent growth in gross domestic product this year was in linewith the impact of political instability on the economy. Hepredicted inflation would be below 4 percent in 2013, "which isin line with the central bank objectives."

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