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Sun 3 Feb 2008 01:24 PM

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Qatar attempts to rein in bank lending

Central bank will increase reserve requirement by 50 basis points to 3.75%, starting February 15.

For the second time in two months Qatar plans to raise the portion of deposits its commercial banks cannot lend, in a bid to control inflation.

Qatar's central bank will increase the reserve requirement by 50 basis points to 3.75%, starting February 15, a central bank official said on Sunday. The official declined to be identified.

Qatar raised its reserve requirement for the first time this decade on December 12, by 50 basis points to 3.25%. There are 100 basis points in a percentage point.

The world's largest producer of liquefied natural gas, where inflation in September ran at a near record 13.7%, last week lowered its deposit facility rate by 50 basis points to match a cut in the US. It kept its lending rates unchanged.

"It's a way to try to tighten monetary policy without lifting rates," said Simon Williams, Middle East economist at HSBC in Dubai.

"It's a positive step, but it's difficult to gauge the impact on liquidity growth when you look at how quickly credit has been growing, and how entrenched inflationary pressures already are," Williams said.

Like other Gulf states, bar Kuwait, Qatar pegs its currency to the US dollar and tends to track US interest rates to maintain the relative value of its riyal.

"It is due on February 15," the central bank official said of the planned change.

"We are now in a period of calculating the reserves for each bank according to their deposits, which we will know by February 12 and then we will apply 3.75%."

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