BEIRUT, (Reuters) - Demand for the Lebanese pound rose this week after the central bank began to swap short-term treasury bills for longer-term papers with a higher return, dealers said on Friday, June 1.
They said the open market operations by the monetary authorities helped ease pressure on the pound, which remained stable at 1,514 to the dollar in interbank deals.
Banque du Liban, they said, kept supplying banks with dollars, but more offers to sell dollars appeared from within the market after the bank traded two-year treasury bills with a 16 percent yield for three-month bills at 14 percent.
"Most of the demand for foreign currency was commercial, for instalment loans and so forth. The panic has subsided," said Habib Haddad, chief dealer at Beirut Riyad Bank.
He said dollar deposits, which rose to 72 percent of total deposits at the end of April compared to 67 percent at the end of last year, appeared to have peaked.
"Theoretically and technically it is very difficult for dollarisation to go any higher. There is also no capital flight, with investors finding the risk on Lebanese Eurobonds acceptable and buying them," Haddad added.
The authorities have been intervening heavily to defend the pound since the beginning of the year as the Lebanese-Israeli front destabilized and worsening public finances helped erode confidence in the currency.
Parliament is expected next week to approve a 2001 budget with a deficit of 51 percent of expenditure and a pledge to privatize to cut losses in public enterprises, which helped push the public debt to over 150 percent of gross domestic product.
The currency market expressed optimism that one of the worse periods of pressure on the pound was over.
Ralph Abi Nader, derivatives dealer at Banque Audi, forecast rising pound demand due to the swaps and the belief that the government appreciates the seriousness of its fiscal position.
"The market is waiting for positive news. Passing the budget next week will be a step in the right direction," he said.
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