Lower interest rates are on the horizon

The accelerating upward trend in local interest rates, which was driven by political and economic challenges and rising global rates, has begun to abate thanks to new positive developments. The market has stabilized following the formation of the new Cabinet and the vote of confidence it received from Parliament. There is a tendency in the banking sector towards lowering interest rates. Implementing the reforms pledged at the CEDRE conference and executing the infrastructure projects that are part of Capital Investment Plan (CIP) will send a positive signal to the market and will contribute to lowering interest rates. Prior to the formation of the new Cabinet, local interest rates were rising at a faster pace than global rates. High interest rates contribute to an escalation of debt service costs and the fiscal deficit. They are detrimental to private sector investment.

A DRIFT TOWARDS LOWER RATES

According to , Secretary General of the Association of Banks, there could be some ups and downs here and there, but the main trend is towards decreasing interest rates. Positive developments reduce the risk premia and, Vice-president and Senior Analyst at Moody’s Sovereign Risk Group said the risk premia of Lebanese Eurobonds declined upon formation of the government and that this particular source of uncertainty had been removed. “Looking forward, significant structural reforms and fiscal consolidation by the new government to unlock donor funding would support macroeconomic stability, increase the prospect of new deposit inflows and potentially reduce the risk premia banks have to pay for new deposits,” she said. , Vice-chairman and Strategy Director at the Bank Audi Group said the fact that the process of implementing reforms and fighting corruption and government waste has been launched will send a good signal to the market and that consequently interest rates would fall to a certain extent. A solid indication that the deployment of the funds pledged at the CEDRE conference for infrastructure projects will materialize will also be a positive signal for the market, he said. The fact that global interest rates will not be raised at the same pace as that of 2018, will contribute to a possible downtrend in local rates. Statements by the U.S. Federal Reserve (Fed) suggest that it is likely to slow down or halt its rate hikes in 2019. The Fed raised its benchmark interest rate four times in 2018.