QCB policies to support funding of commercial banks: Fitch

THE Qatar Central Bank (QCB) is expected to keep its lending and repo rates on hold to limit potential funding pressures on commercial banks stemming from the GCC crisis and overall emerging market volatility, according to a report by Fitch Solutions.

In its ‘Qatar Economic Outlook’ report released recently, Fitch Solutions said that QCB deposit rate will continue to track the US Fed funds rate closely as the QCB looks to protect Qatari riyal’s US dollar peg.

“The QCB deposit rate has mirrored moves in the Fed funds rate throughout the past year, rising by a cumulative 100 basis points (bps) to 2.5 percent. Broadly speaking, we expect this trend to remain in place over the quarters ahead as the QCB looks to avoid capital outflows and resultant pressure on the riyal’s peg to the dollar,” the report said.

“We have moderated our forecast for the QCB deposit rate down to 2.75 percent from 3.25 percent previously. Meanwhile, it appears likely that the QCB’s lending and repo rates will be kept on hold, at least in the near term. The QCB has kept its lending and repo rates flat throughout 2018, likely in a bid to alleviate funding pressures on commercial banks,” the Fitch report said.

A more neutral outlook for US rate hikes, coupled with still-subdued Qatari inflation, will help to facilitate such an accommodative policy by the QCB, the report said.

“Qatari prices grew by just 0.2 percent annually on average over 2018, and the recent trend of deflation has continued into January, when price levels fell by 1.6 percent year-on-year. In the absence of the implementation of a new value-added tax, which the government has now postponed ‘indefinitely’, we do not expect a major pick-up in prices over the quarters ahead,” the report said.