If the economy was to be gauged on the night after the day’s extraordinary news, then the reaction of businessmen and women who dined with Riad Salameh, governor of the central bank, showed that confidence remains at an all-time high or pretty near that.
The governor galvanized his Rotary Club audience without even mentioning Rafik Hariri’s name. Mr. Salameh, who assumed office in no small measure because he was the former prime minister’s broker, has since created his own reputation by simply doing his job of maintaining monetary stability.
The Central Bank, he said, would continue to intervene in the foreign exchange market and “stabilize” the exchange rate.
“We will not deviate from this policy,” vowed the governor. “We are always in the market and we have the capability to meet any demand, regardless of the pound going up or down. Our decision is final.”
After more than five years of an appreciating pound, the exchange rate has developed “immunity’ from political crises, claimed Mr. Salameh.
“We do not foresee any big problems in the exchange market as a result of the political situation,” he said. A depreciation would only cause inflation and would not help exports which owed weak competitiveness to more serious flaws.
“The Central Bank is independent. We will put Lebanon’s interest above all. The real judge is the markets,” said Mr. Salameh. The Central Bank has kept the pound within the official intervention band of LL1,510-1,515.
He warned that interest rates which were “acceptable by regional standards” should not be blamed for the slowdown in industry, agriculture and tourism.
“We want to maintain low interest rates but we do not want to threaten the exchange rate. There are structural reforms that the economy needs to undergo but these are within not my authority,” said Mr. Salameh.
He said that growth was better in 1994 and 1995 despite higher interest rates. He cited Japan, which has interest rates around half a percent but whose economy still could not take off.
Mr. Salameh estimated that there were $2.5 billion “ready to be extended” as loans in the banking system which had nothing to do with higher interest rates on the Lebanese pound.