IMF suggests measures for ‘independent monetary policy’ for Qatar
The International Monetary Fund (IMF) has suggested a series of measures, such as deepening financial markets and tackling balance sheet vulnerabilities, to allow Qatar to pursue a more independent monetary policy over the long term, even if interest rate policy exchange rate remains a “credible monetary strategy”. anchor”.
In its Article IV consultation with Qatar, the IMF found that the country’s exchange rate peg continues to serve Qatar well.
The Bretton Woods Institution’s assessment found that the peg is a “credible monetary anchor”, which will be further supported by fiscal consolidation and competitiveness-enhancing reforms.
A more flexible exchange rate regime would have a limited effect on external competitiveness since 87% of Qatar’s exports are made up of hydrocarbons and could generate significant uncertainty and negative effects on the balance sheet (forex accounting for 17% and 32% respectively). % of banks’ assets and liabilities) , It said.
Given the strength of the recovery and the abundance of liquidity, the IMF supported increases in the Qatar Central Bank’s key interest rates, following the measures taken by the United States Federal Reserve, which, together with the reduction zero rate repo facility, should help reduce excess liquidity and strengthen monetary policy transmission, he said, noting that since March 2022, the QCB has increased the deposit rate by 50 basis points (basis points), the lending rate of 25 basis points and the repo rate of 75 basis points.
QCB Governor HE Sheikh Bandar bin Mohamed bin Saud al-Thani recently told the Qatar Economic Forum, powered by Bloomberg, that the exchange rate policy serves the economy “very effectively”, adding that he does not expects no change in exchange rate policy. .
The monetary policy of the country has been linked to the policy of the US Federal Reserve due to the fixed exchange rate of the riyal with the dollar.
“To pave the way for a more independent monetary policy when it becomes appropriate in the long term,” the IMF recommended strengthening liquidity management through better liquidity forecasting and coordination between fiscal authorities, the Qatar Investment Authority ( QIA) and the QCB.
The measures also included steps to deepen financial markets to improve monetary transmission; and contain balance sheet “vulnerabilities” related to exposure to exchange rate risk.
“Containing banks’ exposure to external liabilities and deepening financial markets would help reduce vulnerabilities and improve monetary transmission,” the IMF report said.
The QCB noted its work to establish liquidity forecasts in coordination with relevant government agencies to promote a proactive liquidity management framework and strengthen monetary policy.