Broad Money M3 Down by $214M in by September 20th, 2018

During the week of Sept. 13^th to 20^th, Broad Money (M3) declined by a weekly LBP 322B ($214M) to stand at LBP 212,625B ($141.04B). As such, M3 rose by an annual 1.55% and by 2.18% since December 2017.

In details, M1 decreased by LBP 349B ($231B) during the week ending Sept. 20^th, to reach LBP 10,929B ($7.25B). This came on the back of a decline in demand deposits and currency in circulation by LBP 206B ($136.65M) and LBP 143B ($94.86M), respectively.

Total deposits (excluding demand deposits) grew by LBP 26.24B ($17.41M) over the same period, owing it to a $69M increase in deposits denominated in foreign currencies. Meanwhile, Term and saving deposits in LBP declined by LBP 78B ($51.74M) over the week.

Accordingly, the broad money dollarization rate rose from 62.50% in the week ending Sept. 13th, to 62.65% by the week ending Sept. 20^th 2018. According to the Central Bank, the overnight interbank rate was maintained at 5% from July 2018 to August 2018.

In the Treasury Bills Auction held on Sept. 13, 2018, the Ministry of Finance (MoF) raised LBP 126B ($84M), through the issuance of bills maturing in 6 months (6M), and notes maturing in 3 years (3Y) and 7Y. The highest demand was achieved on the 3Y notes, which accounted for 39.78% of total subscriptions, while the 6M bills and 7Y notes accounted for the remaining shares of 20.5% and 39.73%, respectively. The discount rate on the 6M stood at 4.87%, while the coupon rates on the notes maturing in 3Y and 7Y stood at 6.5% and 7.08%, respectively.

The Contractionary policy of the BDL which started in the beginning of the year driven by increases in the interest rates to reduce inflation , led to 1.55% year on year increase in M3 compared to 7.47% incline last year during the same period. Moreover, the Central Bank financial engineering scheme offering banks products with attractive returns led to a yearly drop of 5.12% in M2. Finally, the critical political and unstable economic situation is negatively affecting investor’s confidence. In fact, investors are increasing their demand in current instead of   deposit accounts which is reflected in the 4.43% yearly increase in M1.