ABU DHABI, Sept 29 (Reuters) - Lebanon's central bank has been selling some of its holdings of international bonds issued by the Lebanese government to improve its foreign currency liquidity, central bank governor Riad Salameh said on Sunday.
"The central bank has sold from its own portfolio the equivalent of $5 billion this year. During the month of September alone we sold $1.1 billion," he told reporters on the sidelines of an Arab central bankers' meeting in Abu Dhabi.
"These are Republic of Lebanon Eurobonds that the central bank was carrying in its portfolio. We liquidated that to improve the quality of our balance sheet in terms of improving liquidity in foreign currency."
He did not elaborate on the sales of Lebanese bond holdings. The central bank held 25.45 trillion Lebanese pounds ($16.9 billion) worth of securities in July, down from a peak of 26.92 trillion 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 6.27 percent, outperforming the bonds of many emerging market economies. Lebanese commercial banks are often keen buyers of Lebanese government debt offered in the secondary market.
Lebanon's economy has suffered over the past two years as the civil war in neighbouring Syria has caused capital inflows to dry up, although the total size of its foreign reserves has held up and there does not appear to have been heavy pressure on its currency peg to the U.S. dollar.
On Lebanon's foreign exchange reserves, Salameh said: "We are running over $36 billion of liquid foreign assets. Gold is evaluated around $16 billion....We have improved from last year in terms of liquidity."
Maintaining ample deposits in the banking sector is key to keeping the government funded, since the banks use some of those deposits to buy state debt. Salameh said: "Total deposits in the banking sector have grown by 8 percent - it is essentially driven 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 2.0-2.5 percent growth in gross domestic product this year was in line with the impact of political instability on the economy. He predicted inflation would be below 4 percent in 2013, "which is in line with the central bank objectives."