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Sun 15 Aug 2010 03:54 PM

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Qatar cenbank confirms cut deposit rate by 50 bps

Rate on overnight deposits that commercial banks place with central bank down at 1.5%.

Qatar's central bank lowered its overnight deposit rate by 50 basis points in the first cut in over two years, its website showed on Sunday, confirming reports last week by banking sources.

The move brings the rate on overnight deposits which commercial banks place with the central bank down to 1.5 percent effective Aug 11, the website
www.qcb.gov.qa

showed.

However, the overnight lending facility and the repo rate, were unchanged at 5.5 percent and 5.55 percent, respectively.

The central bank did not immediately comment on the change, which analysts have said was aimed at boosting Qatar's non-oil economy and curbing capital inflows.

Banking sources had said there was a cut last Wednesday but the central bank declined comment at the time.

Gulf offocials rarely discuss policy in public and some decisions are not immediately announced.

Qatar, the world's largest liquefied natural gas exporter, had kept its main rates unchanged since May 2008 despite the global financial crisis.

Its economy is expected to surge 16.1 percent in real terms this year, faster than any other Gulf oil exporter, mainly due to gas output expansion and generous infrastructure spending.

Inflation is expected to be in the low single digits with consumer prices forecast to rise 1.7 percent this year after falling 4.9 percent in 2009.

Government-driven expansion of gas facilities, however, is coming to an end and there is a need to support the non-oil sector, analysts have said.

The International Monetary Fund, in a report on Qatar in February, said the central bank had indicated it was monitoring capital inflows carefully and was ready to adjust interest rates if needed.

Qatar pegs its currency to the dollar, limiting central banks' flexibility to move too far from the US benchmark rate as that could trigger larger capital flows and put their pegs under pressure.

The US Federal Reserve is expected to keep rates in a range of zero to 0.25 percent through mid-2011.

Qatar's Deputy central bank governor Sheikh Fahad Faisal Al Thani told Reuters last December that by holding rates steady, the bank wanted to maintain a positive differential with the US benchmark to prevent capital outflows.

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