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Keeping interest rates low a priority: Qatar.

Summary: DUBAI -- The Qatar Central Bank said on Tuesday it wants to keep interest rates low to support lending to the real economy, and also reported that local banks have low exposure to the debt crisis-stricken eurozone.

DUBAI -- The Qatar Central Bank said on Tuesday it wants to keep interest rates low to support lending to the real economy, and also reported that local banks have low exposure to the debt crisis-stricken eurozone.

Pending a successful resolution of the sovereign debt problems in Europe, global liquidity conditions could tighten from increased risk aversion, which could have an impact on investments and project financing in Qatar," the central bank said in its 2011 financial stability review.

"In this context, sustaining the regime of soft interest rates through proactive liquidity management continues to remain a key priority for supporting growth."

The central bank cut its overnight deposit rate by a combined 75 basis points in April and August 2011 to a current level of 0.75 percent to discourage banks from parking excess money at its accounts, support lending in the real economy and bring the rate closer to its US benchmark.

Since the Qatari riyal is pegged to the dollar, the central bank cannot keep too large a gap with US rates without inviting capital inflows.

The central bank also took several steps to drain excess money last year. In January 2011 it issued a QR50 billion ($14 billion) bond directly to local banks, and in May and August, it launched monthly auctions of 91-, 182- and 273-day Treasury bills.

As a result, available liquidity in the Opec member's financial system dropped to a mere QR5.8 billion at the end of 2011 from 73.2 billion a year before, the review showed.

In its analysis of risks stemming from the eurozone turmoil, the central bank said that total exposure of Qatari banks to Europe was around five per cent of their aggregate assets.

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Date:Sep 4, 2012
Words:338
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