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Interest Rate Determination in Lebanon
Author:
Mr. Tushar Poddar
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Mr. Mangal Goswami null

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Mr. Juan Sole
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Victor Echévarria Icaza null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 094
Language:
English
Publication Date:
01 Apr 2006
DOI:
https://doi.org/10.5089/9781451863543.001
ISBN:
9781451863543
ISSN:
1018-5941
Pages:
22
Keywords:
WP; interest rate; asset; yield; rate of return; interest rates; Lebanon; sovereign risk; FCD rate; Lebanese pound; Eurobond rate; interest rate arbitrage; T-bill rate; benchmark rate; Deposit rates; International reserves; Exchange rate risk; Interbank rates; Monetary base; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper seeks to understand how interest rates are formed in Lebanon, by focusing on the pass-through from benchmark rates, prevailing liquidity conditions, and the main characteristics of the Lebanese economy, notably its open capital account, fixed exchange rate, high government borrowing requirement, large public debt, and high degree of deposit dollarization. We find that international interest rates are an important element in the determination of interest rates in Lebanon. In particular, the pass-through of global benchmark rates to interest rates on sovereign bonds is about 70 percent. The less-than-complete pass-through could be attributed to a home-bias effect reflecting a relatively stable and dedicated investor base. The study also shows that interest rates in Lebanon are affected by liquidity conditions as well as perceived sovereign risk.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund