Huge reduction in M1 amid BDL Strategy to appreciate the National Currency

Huge reduction in M1 amid BDL Strategy to appreciate the National Currency

BDL’s latest statistics on money supply revealed that Broad Money (M3) decreased by LBP 2,124B to stand at LBP 198,463B ($131.65B) by the week ending January 20, 2022. As such, on an annual basis, M3 retreated by 1.11% year over year and by 0.39% since year-start (YTD).

In details, M1 decreased by LBP 1,921B ($1.28B) by a week to settle at LBP 58,559B ($37.52B) by January 20, 2022. The expansion is attributed to the regression in demand deposits by LBP 105B and a decrease in currency in circulation by LBP 1,816B. The huge reduction in the currency in circulation (cc) is due to the BDL circular 161 that allows commercial banks to sell dollars to their customers at the Sayrafa rate that is slightly less than the black market rate. The BDL is trying to reinforce the national currency by absorbing the volumes of Lebanese pound from the market. That’s what explains the huge reduction in the cc during the month of January.

In turn, total deposits (excluding Demand deposits) decreased by $134M, owing to a decrease in Terms and saving deposits by LBP 123B ($81.59M). In the same token, deposits denominated in foreign currencies regressed by $53M.

As such, the rate of broad money dollarization increased from 60.38% in the week ending January 13, 2022 to 60.99% by the week ending January 20, 2022.

Looking at interest rates, the average rate on deposits in LBP and in USD, at commercial banks, decreased from 2.64% and 0.94% in December 2020 to 1.09% and 0.19%, respectively, in December 2021. In its turn, the average lending rate in LBP and USD, at commercial banks, went down from 7.77% and 6.73% in December 2020 to 7.14% and 6.73%, respectively, in December 2021.

Analytically, the money suppge #rate #crisis #M1 #CPI #Inflation, ly M3 can be derived from combining the balance sheet of BDL with the balance sheet of banks to arrive at the monetary survey of the banking system. The resulting M3 would be equal to the sum of: net foreign assets (NFA), credit to the private sector (CPS), net credit to the public sector (NCPS), and other items net (OIN). Latest data show that in December 2021, M3 stood at $133.38, 0.51% more than December 2020; NFA were $15.20B, less by 15.16% YOY; CPS was $26.97B, less by 21.74% YOY; NCPS was $33.25B, less by 14.89% annually; and OIN were $57.94B, higher by an annual 40.56%, and comprising mostly (in BDL’s terminology) other assets which include open market operations and seigniorage, considered to be a controversial account by some.

In its treasury bills (T-Bills) auction dating January 20, 2022, the Ministry of Finance (MoF) raised LBP 132.631B ($87.98M) through the issuance of T-Bills maturing in 3 months (3M), and notes maturing in 1 years (1Y) and 5 years (5Y). The highest demand was recorded on the 5y notes which grasped 49.96% of total subscriptions, while the 3M T-bills and the 1Y notes accounted for the remaining shares of 31.99% and 18.04%, respectively. In details, the yield on 3M T-bills stood at 3.50%. Meanwhile coupon on the 1Y and 5Y notes stood at 4.31% and 6%, respectively.

Source: BDL; MoF


Leave a Reply

Your email address will not be published. Required fields are marked *