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French Version

Salameh predicts high but 'natural' inflation

Says 10 percent is in line with global trends

Central Bank Governor Riad Salameh on Thursday projected an inflation rate of more than 10 percent in Lebanon this year. Speaking to representatives of the Association of Banks in Lebanon, the governor said it is only normal that Lebanon is affected by world trends.

"The phenomenon of global inflation will surely have some kind of impact on Lebanon and I expect that inflation here will be more than 10 percent in 2008," Salameh said.

This is the first time Lebanon had such a high inflation since 1994, when the Banque du Liban intervened heavily to bolster the weak Lebanese pound.

"Inflation ranged between 2 and 4 percent over the past 12 years. But it was only natural to see inflation climb higher in light of global inflation," one banker said.

Salameh said that the Central Bank has no intention of increasing interest rates on the Lebanese pounds or other currencies. "Our interest rates are still in the same line of other countries in the region," he said.

Finance Minister Jihad Azour warned recently that inflation would increase if demands for a massive increase in the minimum wage were heeded.

The government of Prime Minister Fouad Siniora agreed earlier this month to raise the mimimum wage LL500,000 from LL300,000, an offer dismissed by the General Labor Confederation - which had insisted on LL960,000 - as insufficient and ridiculous. But most economists interviewed by The Daily Star have said that inflation will not reach alarming levels if increase were a modest one.

Salameh also tried to alleviate the fears of the Lebanese iver the possible repercussions of last week's political violence.

"There should be no concern about our national currency because the Central Bank has more than $14 billion in gross foreign currency reserves," he said.

Several bankers confirmed this week that there was no unusual demand for the US dollar in the Lebanese market.

Salameh noted that 77.5 percent of bank deposits in Lebanon are in US currencies.

"Our economy is already dollarized and for this reason citizens are not worried about their savings," he said.

He also reiterated that the Central Bank has no intention to revise its monetary policy: "The policy of the Central Bank is very clear. We will continue to preserve the stability of the Lebanese pound as well as secure foreign currency reserves."

The governor said that Lebanon was able to roll over $875 million of Eurobonds last month despite the difficult political and security conditions. "This amount of money does not pose a burden on the public debt, and the Lebanese banks which financed most of this transaction are very liquid," Salameh said.

But he also urged the Lebanese to cast their differences aside to help the economy.

"If the political climate improves in 2008 then this will be a very promising year for the banks and there won't be any harm on the economy," he said.

He added that the Central Bank has drawn up contingency plans in the event the political crisis worsens, but he did not disclose details.

Beirut 16-05-2008
The Daily Star

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