The report added that high-frequency financial indicators, following the initial period, are improving and the pegged exchange rate
For Lebanon to maintain its pegged exchange rate
to the dollar, a "significant fiscal adjustment is inescapable," it added.
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.
Any political risk event in the region threatening stability within Lebanon could adversely affect banking system deposit growth, the pegged exchange rate
and refinancing of public sector debt.
The GCC's large foreign-currency reserves provide ample room to maintain pegged exchange rate
regimes for several years, even in an adverse oil price scenario," senior analyst Mathias Angonin said at a Press briefing.
A pegged exchange rate
is precisely what Lebanon has maintained for more than 20 years, with no change to the peg since 1997.
Due to pegged exchange rate
regimes, the modest increase in interest rates in the US beyond the first half of 2015 will result in higher domestic interest rates; however, the pass-through of policy rates to lending rates is generally weak in the GCC countries, and the impact of rising interest rates is likely to be limited.
The ratings are constrained by our view that the quality of Oman's public institutions and governance is moderate, that high fiscal, external and economic dependence on volatile hydrocarbons receipts will persist, and that monetary policy flexibility is limited by the (US dollar) pegged exchange rate
," it said.
In the countries with pegged exchange rate
regimes (exchange rate serving as the nominal anchor) it seems that interest rates were slightly more vulnerable to the unexpected demand shock.
Finance Minister Rimantas Sadzius has explained that this step is not only "necessary" after two decades of a pegged exchange rate
regime, first to the dollar and later to the euro.
ClickPress, Thu Jan 02 2014] Although Denmark is not part of the eurozone monetary union, its deep financial and trade links have been strengthened by its pegged exchange rate
regime, leaving the economy significantly exposed to spillover effects of the eurozone debt crisis.
Pegged exchange rate
is a regime in which the central bank announces an official (par value) of its currency and then maintains the actual market rate within a narrow band by intervening in the forex market.