Net international reserves of QCB stood at QR113.9bn at the end of 2016

Qatar Central Bank’s net international reserves stood at QR113.9bn at the end of 2016, QCB’s latest Financial Stability Review has shown.At this level, reserves were adequate in 2016, based on traditional measures of reserve adequacy, suggesting that QCB has adequate cushion of reserves to meet contingencies.Generally, in a pegged exchange rate regime, foreign currency reserves must be sufficient to cover 100% of reserve money (M0) and, as a simple rule of thumb, cover three months of import of goods and services, and QCB reserves are significantly higher than these requirements. Some other indicators such as reserves as a ratio of currency issued; broad money; and GDP are also support reserve adequacy.Money supply as represented by narrow money (M1) decelerated during 2016 as compared to the previous year reflecting deceleration in growth of demand deposits, QCB said in its 8th Financial Stability Review.However, total domestic liquidity, as captured by broad money (M2) witnessed a decline in 2016 as against an increase recorded in the previous year.The increase in M0 as against the decline in M2 was reflected in the moderation in broad money multiplier (M2/M0) to nine at the end of 2016 from 10.7 at the end of 2015. In terms of the behavioural ratios, the moderation is attributed mainly to the increase in the total reserve-deposit (TR/D) ratio, with the others-deposit (O/D) ratio as well as currency-deposit (C/D) ratio remaining broadly unchanged from 2015. During 2016, base money or reserve money (M0) increased in contrast to a decline witnessed during 2015.The y-o-y increase in M0 in 2016 was reflected, among the components, in the sharp increase in “others” viz., QMR deposits, partly reflecting reduction in auctions of treasury bills during the year. Moreover, the growth in currency issued as well as total reserves were also higher than that in 2015. The higher growth of total reserves reflected higher deposit growth, which was due to non-resident deposit growth.Among the drivers of reserve money, the increase in M0 was due to the increase in net domestic assets (NDA), which more than fully offset the decline in net foreign assets (NFA) of the QCB.The decline in NFA was due to the decline in both holding of foreign securities and balances with foreign banks. The increase in NDA was due to the increase in other items (net) and in part due to some increase in net claims on government reflecting a reduction in dues to government, QCB said.