Growing Pressures are Major Blow to the Lebanese Economy

Lebanese Forex Market

To-date, the Lebanese Pound (LBP) remained steady within the official range of USD/LBP 1,514 to 1,514.5, with a mid- price of USD/LBP 1,514.25 in the week of March 18, 2022.

On a different note, the Lebanese pound traded with a lower range on the parallel market during this week swinging between 22,500LBP/USD and 23,500LBP/USD.

Lebanon has a lot to consider in the upcoming period, including development associated with the Ukraine-Russia war and possible food and goods disruptions. That is in addition to the run up to bank’s strike next week and the uncertainty coupled with the recent development. On a separate note, the IMF declared to remain engaged with the Lebanese authorities on economic reforms and a further mission is planned this month. However, extensive works that require time and commitment is needed in the period ahead.

In turn, the dollarization ratio for private sector deposits decreased from 79.25% in December 2021 to 79.25% in January 2022.

As for the Euro/LBP currency pair, the Euro appreciated against the dollar-pegged LBP with the currency pair going from last week €/LBP 1,653.73 to €/LBP 1,676.90 by March 17, 2022. Moreover, the Nominal Effective Exchange Rate (NEER) of the Lebanese pound slightly decreased weekly by 0.40% to stand at 157.80 points on March 18, 2022.

International Forex Market

The Euro/USD appreciated against the dollar from last week from €/USD 1.0970 to €/USD 1.1124 by March 18, 2022.  After consecutives weekly drops for the Euro, it has rebounded this week to its resistance levels as some potential positive discussion between Europeans and Russia reflected positively on the euro market.

Commodities

Gold price slightly decreased by 1.54% at the end of this week to $1,937.30/ounce. Commodity markets have been tremendously volatile in recent weeks. However, the Fed decision to raise interest rates by 0.25 bps could be a headwind for gold as higher rates would increase the opportunity cost of holding non-yielding precious metals and can therefore weigh on demand for gold. Meanwhile, current inflationary environment and geopolitics remain the key factors to monitor.

Crude oil prices decreased at the end of this week by 5.93% to $103.55/Barrel. Energy prices and markets would remain unstable amid geopolitical and supply risks. However, the drop this week is a result of fears of a COVID flare up in China which could reduce demand. Hence, oil price shocks have historically led to lower output and given the inflation outlook, fragile global economy grounds, and consumers’ behavior, the war would soon start to weigh on net trade due to softer foreign demand and higher import bills, therefore the global economy is most likely to slow down remarkably in the upcoming period.