By Regan Doherty and Martin Dokoupil / Reuters
DOHA/DUBAI: Qatar’s central bank will keep issuing 4 billion riyals ($1.1 billion) in treasury bills every month, its chief said on Monday, suggesting that policymakers are still comfortable with strong bank lending growth despite higher inflation risks.
The world’s top liquefied natural gas (LNG) exporter is expected to see long-subdued inflation reach a four-year high this year, fueled by public wage rises and large investment projects ahead of hosting the 2022 soccer World Cup.
“We will continue to issue 4 billion riyals in T-bills at the beginning of each month,” central bank Governor Sheikh Abdullah bin Saud Al-Thani told reporters on the sidelines of a financial conference in the Qatari capital.
He declined further comment on monetary policy.
Qatar along with most other Gulf Arab oil exporters pegs its riyal to the U.S. dollar. That limits the central bank’s flexibility to adjust interest rates to counter inflation as too large a differential against US benchmarks could invite inflows of speculative capital.
Instead, the central bank has to count on tools such as T-bills, reserve requirements and open market operations to drain potentially inflationary liquidity from the banking system.
“They do see liquidity as being a little too abundant at the moment, and loan growth has been very rapid over the last year or so,” said Liz Martins, senior MENA economist at HSBC.
The central bank cut its key overnight deposit rate by 25 basis points to 0.75 percent last August to fuel bank lending to the private sector and trim hot money inflows.
Despite massive investment plans, Qatar does not need to sell government debt thanks to robust income from LNG exports but it has been issuing T-bills since last May to help fine-tune liquidity and develop the local debt market.
The country of 1.7 million people has outlined public investment plans worth $95 billion over five years to 2016, propelling real estate credit, which grew by 59 percent a month on average in the 12 months through February.
Inflation risk
Overall, growth in bank lending to the private sector slowed to an eight-month low of 16.4 percent in February but still remains above rates seen in other Gulf countries.
“Right now, we are looking at a situation where inflation largely because of a property market correction is relatively moderate but it’s clear that it has started picking up,” said Jarmo Kotilaine, chief economist at National Commercial Bank.
“So in that sense you want to have this instrument (T-bills) in your toolkit,” he said.
Annual inflation has been holding steady at 1.2 percent this year but a Reuters poll forecasts it will average 3.2 percent for 2012 as a whole, well up from 1.9 percent last year but far below a record 15 percent in 2008.
The central bank sells T-bills with three, six and nine-month maturities every month but it does not publicly release results of its auctions. The yields range from 1.9 percent to 2.75 percent for different tenors, a market source said.
“Unfortunately there is not enough transparency in the market about the results of each auction regarding the maximum and minimum yields accepted and the amounts accepted too,” said the source, who did not want to be identified.
Qatari banks held about 12.4 billion riyals worth of T-bills at the end of February, slightly up from 12.0 billion in the previous month, the latest central bank data show.
