Lebanon Pound Stays Stable in Crisis, Salameh Says

Lebanon’s pound is stable and demand for foreign currency is normal even as the political deadlock in the country deepens after the collapse of the government, Central Bank Governor Riad Salameh said.

“The demand for dollars is normal, the central bank is in control of the forex in the country and it’s also providing liquidity in all currencies,” Salameh said in a telephone interview today from his office in Beirut. “The pound is stable and will remain stable.”

The coalition headed by Saad Hariri collapsed last week over a United Nations inquiry into the killing of former premier Rafiq Hariri, Saad’s father. The Shiite Muslim Hezbollah movement and its allies walked out, saying the probe is part of an Israeli-American plot to target the group. The political crisis threatens to rekindle violence in a country that emerged from a 15-year civil war in 1990 and has seen frequent recurrences of sectarian strife since then.

The UN prosecutor filed an indictment this week, though the contents will remain confidential while they are reviewed. President Michel Suleiman is due to start talks with political leaders on forming a new government next week.

Hezbollah’s leader, Hassan Nasrallah, said he expects the court to implicate members of his group. Hezbollah, classified as a terrorist organization by the U.S. and Israel, has denied any role in the killing of Hariri.

‘Means and Tools’

“Given the prevailing political uncertainties, it would not be unusual to see increased demand for foreign currencies and some conversions from Lebanese pounds to U.S. dollars and other currencies,” Nassib Ghobril, head of research at Lebanon’s Byblos Bank SAL. “The Central Bank is ready for such an eventuality and has the necessary means and tools to meet market demand and maintain the stability of the currency.”

The central bank has kept the Lebanese pound at about 1,500 to the dollar for more than 10 years. The currency’s stability coupled with high interest rates has attracted a steady flow of funds into the country. The bank has the resources needed to defend that policy, with foreign currency reserves of $31 billion as of Jan. 15, and another $12.7 billion in gold. Bank deposits in Lebanon grew 10 percent last year to $110 billion.

“The Lebanese pound has remained stable in the midst of external financial or military shocks, as well as during prolonged internal political deadlocks and deteriorating security conditions,” said Ghobril.

The benchmark BLOM Stock Index dropped for the fifth day, falling 0.5 percent to 1,458.37 at the close in Beirut to extend its weekly drop to 2.4 percent.

“We have been there before and have had many shocks in the past,” Cyril Haddad, head of trading at Ahli Investment Group SAL in Beirut, said by phone today. “I think the market is resilient.”

To contact the reporter on this story: Massoud A. Derhally in Beirut, Lebanon at mderhally@bloomberg.net.

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net