Qatar’s central bank governor sought to dampen expectations for rising interest rates on Saturday after a jump in local bill yields suggested liquidity in the Qatari banking system was beginning to tighten.
On Thursday, the central bank unexpectedly sold just half of the amount of Treasury bills which it originally planned to sell, as yields at its monthly bill auction jumped from the previous month.
Commercial bankers attributed the smaller sale at least partly to low oil and gas prices, which are beginning to reduce liquidity in banking systems around the region.
Upward pressure on rates looks set to increase if the U.S. Federal Reserve starts tightening monetary policy in coming months, as some economists expect. Qatar and other Gulf Arab states tie their currencies to the U.S. dollar, limiting their room to pursue independent monetary policies.
But Qatar central bank chief Sheikh Abdullah bin Saud al-Thani said on Saturday that he saw no reason to imitate any U.S. rate hike, the official QNA news agency reported.
“Current conditions in the Qatari banking system, which are characterised by rising liquidity, and the liquidity ratio set by the central bank for local banks rule out a local interest rate hike if one is decided in the U.S.,” Sheikh Abdullah said.
The central bank sold three-month T-bills on Thursday at a yield of 0.99 per cent, up from 0.85 per cent at a sale on Sept. 1. The three-month interbank offered rate jumped to 1.25 per cent from 1.19 per cent on Wednesday.
But Sheikh Abdullah insisted that liquidity in the banking system remained ample and that demand for T-bills was still strong at last week’s auction.
He also predicted the Qatari economy would continue to grow moderately – it expanded 4.8 per cent from a year earlier in the second quarter of this year, buoyed by heavy state spending – and that Qatar’s huge financial reserves would insulate the economy from U.S. monetary tightening.
Economists agree that Qatar would have some leeway to avoid raising rates if the United States tightened policy, at least initially. Assets in its sovereign wealth fund are estimated to exceed $250 billion, meaning it could easily resist any pressure on the riyal’s peg to the dollar even if capital outflows from Qatar increased.