By Pratap John
Chief Business Reporter
The Qatar Central Bank (QCB) may raise deposit rate in line with Fed policy, with a lag of a month or two, Samba Financial Group said, which expects the US to raise rates this year, despite a weak global inflationary picture.
Any QCB decision on deposit rate hike will have “obvious implications for the cost of funding”, Samba said in a report.
However, given “past divergence” a matching rate hiking cycle is not “automatic”, Samba said.
Given the riyal’s peg to the dollar, the “QCB will monitor the Fed’s rate decisions closely”, the report said.
According to Samba, the global outlook for 2015 is one of “significant divergence” amongst both developed and emerging markets (EM).
The US will raise rates later this year on the back of solid growth, despite a global environment of low growth and weak inflation.
“This will contrast with monetary loosening in Europe, Japan, and many EMs (emerging markets),” Samba said.
While US growth picks up pace, the eurozone and Japanese economies continue to be stalked by low growth and weak inflation.
China’s growth will continue to slow but will remain above 6%, the report said.
Monetary policy will remain loose in the eurozone and Japan, and this policy divergence will play out in financial markets, especially currency markets.
Divergent monetary policies will continue to favour a strengthening dollar against a weaker euro and yen. Emerging market currencies will also tend to weaken, Samba said.
In terms of risk sentiment, Qatar is still well perceived by the markets, it said.
Some pressures were evident in the dollar/riyal forward rates at the end of January, though these have since dissipated.
The five-year credit default swap (CDS) remains depressed compared to the stresses in 2011, despite the fall in oil prices.
Meanwhile, equity markets have been volatile and, having managed to hold onto a positive gain in 2014, are down for the year-to-date.
Nonetheless, the Doha stock market (Qatar Exchange) remains a generally strong performer, and ranks third in the region by market cap, Samba said.
The report also said Qatar was in a relatively strong position to weather the recent collapse in oil prices.
“Though we think it likely the fiscal accounts will record a marginal deficit this year, this could be avoided through a reduction in the allocation of hydrocarbon revenues to various accounts including the QIA (Qatar Investment Authority). That said, there are ample international reserves (around $41bn) and more importantly QIA assets of around $256bn, to cover a deficit if needed,” Samba said.
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