The Qatar Central Bank's (QCB) active liquidity management initiatives have helped absorb QR16bn liquidity from the country's financial system last year, through the issuance of T-bonds, said The Peninsula.
During 2013, a total of QR44bn of T-bills of various maturities was issued while the same amount matured. As a result, there was no net absorption of liquidity through T-bills. In contrast, the QCB absorbed QR16bn through issuance of T-bonds, the central bank said in its Fifth Financial Stability Review issued yesterday. The QCB introduced quarterly auction of 3-year and 5-year government bonds of QR2bn each since March 2013 in order to help in the formation of a yield curve for longer maturities. The issuance of such bonds was to facilitate the liquidity management framework of the QCB and provide a boost to the domestic debt market.
The review report noted since 2011, the QCB's proactive liquidity management operations have helped absorbing excess liquidity from the financial system while facilitating credit flow to the productive sectors of the economy. During 2013, domestic liquidity conditions were largely influenced by three distinct factors including foreign exchange flows; net government spending; and credit off-take. Foreign inflows in 2013 continued to remain high as a result of higher export earnings.
Providing a major boost to investments in infrastructure and capacity creation, the high level of government spending in the fiscal year 2013-14 was a key driver of liquidity conditions in the economy. In contrast, credit off-take from commercial banks decelerated in 2013 as public sector credit growth decelerated. Sustained increase in foreign currency deposits along with lower foreign currency lending to residents led banks to reduce their reliance on inter-bank borrowings from abroad. Lending in foreign currency to residents declined to QR101.8bn in December 2013 from QR235.2bn in December 2012 -- a decline of 56.7 percent during the year. As a result, the net interbank borrowings of commercial banks from abroad declined to QR52.1bn in December 2013 from QR76.0bn in December 2012.
As of end-2013, surplus liquidity declined to QR6.2bn as compared with QR13.5bn at end-2012. While net QMR (Qatar Monetary Rates) deposits declined sharply as compared to end-2012, excess reserves increased during the year. The decline in QMR deposits by the end of the year reflected auction of quarterly T-bonds in the month of December 2013 and liquidity pressures due to negative spillovers from global developments. QMR deposit transactions declined during the second half of the year as banks preferred to invest in T-bonds than to park surplus liquidity with the QCB.
Daily average deposit transactions declined from a peak of QR6.6bn in January to QR0.6bn in August 2013. Banks' recourse to the QMR lending facility increased during the second half of the year reflecting shortage of liquidity by some banks.