Lira weakens further, with dollar trading above LL28,000

BEIRUT — The lira has dropped further against the US dollar, to below LL28,000, a level last seen in mid-January, before the central bank started injecting unlimited dollar amounts through the banking system.

Here’s what know:

    • In the span of three months, the central bank used up $1.5 billion in depositors’ money to stabilize the lira in the parallel market and bring the rate closer to that of the Sayrafa rate.

    • The strategy worked in February and March, as both rates converged to mid LL20,000, and the difference between the two rates narrowed down to less than 5 percent.

    • Russia’s invasion of Ukraine sent commodity prices higher, especially fuel and wheat, thus requiring more dollars to fund the country’s imports.

    • The central bank started delaying payments to importers, forcing the government to dip into the Special Drawing Rights to pay not only for wheat imports but also for medicines and general expenses for Electricité du Liban.

    • The preliminary deal with the International Monetary Fund announced earlier this month still has a long way to go before it receives final approval and before the country receives a portion of the earmarked $3 billion.

    • A leaked government financial rescue plan created panic among depositors after the plan revealed that $60 billion of deposits would be written off and only accounts of less than $100,000 would be preserved.

    • The pushback against the leaked government plan likely foreshadows further delays in approving the budget, the capital control law, and amendments to the banking secrecy law, three major requirements of the IMF before a final deal can be approved.

    • Market observers do not expect any major progress on reforms at least until after the election mid-May, despite the Information Minister’s assurance that the plan will be approved before.

    •The strategy of the central bank to reduce the money supply and tighten the liquidity in lira has put pressure on overall economic activity as many businesses are no longer accepting payments by cards and thus overall sales have decreased.

    • The cash lira to check lira discount rate has reached 40 percent, meaning that a LL100 million check would sell for LL60 million in cash.