Posted on October 07, 2017

The Qatar central bank's international reserves and foreign currency liquidity rebounded in August after falling steeply for two months because of sanctions imposed by other Arab states, official data showed on Thursday. The reserves and liquidity, a measure of the central bank's ability to support the riyal currency, recovered to $39.0 billion in August from $36.1 billion in July. In May, just before the sanctions, they had stood at $45.8 billion. 

The central bank did not say why they rebounded, but bankers believe the government may have used money from Qatar's sovereign wealth fund to replenish the reserves. The central bank's holdings of foreign securities continued shrinking in August but its balances with foreign banks rose sharply. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties with Doha on June 5, prompting banks and investors from those countries to withdraw billions of dollars from Qatar. This put the central bank's reserves under pressure.

The central bank delayed publishing its monthly monetary data for July and August for several weeks, leaving investors guessing about how serious the damage to the reserves had become. When it resumed publishing the data on Thursday, it changed the format; it did not disclose net international reserves, as it had done previously, but a different indicator, international reserves plus foreign currency liquidity. Net international reserves totalled only $24.4 billion in June, but international reserves and foreign currency liquidity were much larger in that month at $40.2 billion, according to the official data. 

The central bank said it had changed the way it reported its reserves at the suggestion of the International Monetary Fund, in order to conform to its Special Data Dissemination Standard. Regardless of the current level of the central bank's reserves, most analysts believe Qatar can defend its currency almost indefinitely because it could keep replenishing the reserves by liquidating assets in its sovereign wealth fund. The fund, the Qatar Investment Authority, is believed to have had assets of about $300 billion at the start of the diplomatic crisis, and within that total, liquid foreign assets may have amounted to $180 billion or more. 

Pressure on the reserves is expected to ease in coming months as institutions in the four Arab states complete their bank deposit withdrawals from Qatar and no longer have much money left in the country to pull out. 

source: Reuters