The lira strengthened against the dollar early Monday. (Credit: Reuters)
BEIRUT — The Lebanese lira traded as strongly as LL16,500 to the US dollar on the parallel market Monday morning, having progressively strengthened against the dollar since the middle of last week as confidence grew that a new prime minister-designate would be appointed.
The gains made early Monday were largely attributed to the anticipated naming of billionaire and former Prime Minister Najib Mikati to form the next government.
The lira started the day at just below LL20,000 to the dollar, but as successive parliamentary blocs put their support behind Mikati during parliamentary consultations hosted by President Michel Aoun, the national currency strengthened, reaching LL16,500 to the dollar before weakening slightly to LL17,400 at around 6 p.m, after Mikati won the support of a majority of parliamentarians to lead the next cabinet.
The lira hit a record low of LL24,000 against the dollar in mid-July when Saad Hariri stepped down as prime minister-designate after nine months of failing to agree a cabinet lineup with Aoun.
The partial retracement is largely due to traders’ lifted hopes in the possibility of a government forming and starting to address Lebanon’s myriad economic woes, a financial expert and two exchangers told L’Orient Today.
Saeb el Zein, a former managing director with several high-profile international banks and funds, said that Lebanon’s currency exchange market is small enough that even a few large traders taking the same position as each other can lead to significant price movements.
“If a number of these guys decide to go one direction in a thin market, it can cause it to move. Before we were moving one way because there was no confidence. Now it’s the opposite.”
But, he warned, “a big move like this is not justified unless you have a government in place,” meaning that the price might fall if hopes of a political breakthrough are diminished yet again.
Asked what had influenced the lira’s appreciation, two exchangers L’Orient Today spoke to had a quick and certain response: “the political situation.”
They explained that the lira’s improvement is not because there is a lack of the currency in the market following last week’s three-day Eid al-Adha holiday, as some have posited, but rather due to momentary renewed hope for political stability with the expected appointment of Mikati.
Minister of Economy and Trade Raoul Nehme meanwhile called on businesses to quickly lower prices before Tuesday morning to allow consumers to benefit from the strengthened currency.
Businesses routinely increase prices when the lira falls, but are not as quick to lower them when the lira recovers, a practice Nehme called “morally and professionally unacceptable.”
Businesses may be exposed to penalties if the Consumer Protection Directorate believes they are “manipulating prices and cheating,” Nehme said.