Qatar cuts deposit rate in line with US

Doha: Qatar's central bank cut its overnight deposit rate by half a percentage point to 1.5 per cent, its first such move in two years, after the US repeated its pledge to keep rates low for an extended period.

All other key rates remained unchanged, said a central bank official, who spoke on condition of anonymity because of bank regulations. Qatar's overnight deposit rate was last cut by 25 basis points to 2 per cent on May 1, 2008. The lending rate, which is the key measure used by the central bank to convey signals to the market, was held at 5.5 per cent.

"It will help with bank recapitalisation as banks will now have a larger spread between benchmark loans and deposits," Mark McFarland, an economist at Emirates NBD, said. "The central bank is signalling to the market that deposit rates should stay low as is now being signalled by the US Fed."

Inflation

The Federal Reserve yesterday left the overnight interbank lending rate target in a range of zero to 0.25 per cent, where it's been since December 2008, and repeated a pledge to keep rates low "for an extended period".

In common with most Gulf states which link their currencies to the dollar, Qatar often takes its cue from the US when setting rates.

Qatar experienced three years of inflation above 10 per cent, peaking at 15 per cent in 2008. Consumer prices declined by 2.8 per cent in June, following a drop of 3.6 per cent in May. The Qatari government has predicted inflation will accelerate to 1 percent this year from deflation of 5.5 per cent last year. The economy grew at almost 15 per cent a year between 2006 and 2008, before slowing to 9 per cent last year.

Growth is forecast at 18 percent this year, driven by high oil and gas prices and government spending. Qatar, the world's biggest producer of liquefied natural gas, is spending $100 billion (Dh367 billion) on projects to improve its infrastructure and raise its annual LNG export capacity to 77 million tonnes.

Rapid growth has "the potential of overheating the economy unless the government continues to prioritise and sequence its spending toward infrastructure spending," the Washington-based International Monetary Fund said in a February report. Qatar has sold a total of 12 billion riyals (Dh12 billion) of bonds and Islamic debt this year to reduce liquidity among lenders.