Qatar Economic Review 2006(September) - QNB

Table 6.2Change in Qatari Riyal againstother major currencies(2002 - June 2006)Note: An Emiri Decree (No. 34)was issued in July 2001 fixing theQatari Riyal to the US$ at a rate of1 US$ = QR 3.64.(Average) 2002 2003 2004 2005 June 2006Pound Sterling -4.3% -8.8% -12.1% 0.6% -1.3%Euro -5.2% -19.9% -10.0% -0.2% -1.7%Swiss Franc -8.3% -15.7% - 8.3% 0.1% -1.0%Japanese Yen (Per 100) 3.2% - 8.2% -7.2% 1.8% 3.8%Source: Qatar Central Bank.6.3 Interest Rate PolicyUp until 1996, the QCB imposed a ceiling on interest rates offered by commercial banks on credits anddeposits. In February 2001, the QCB removed its ceiling on interest rates for local currency deposits,freeing the banking system from all interest rate policy restrictions.In July 2001, the QCB introduced a new monetary instrument called the “Qatar Monetary Rate” (QMR),which allows banks in Qatar to deposit or borrow from the QCB, overnight funds of an amount not lessthan QR 2.0 million, at rates determined by the QCB, which are fixed on a daily basis.Short-term interest rates in Qatar follow closely those prevailing in the US, with a slight positive differential.The US Federal Reserve raised interest rates seven times during the year 2005 and four times during thefirst half of 2006, and as at the end of June 2006 the US Federal Funds rate stood at 5.25%. The QCBraised interest rates eight times during the year 2005 and three times during the first half of 2006. In asurprise move the QCB reduced the repo rate by 25 bp on the 3rd of July to 5.55% (Table 6.3), eventhough the US Federal Reserve raised its interest rates a few days earlier. Domestic inflation continuesto be a key concern for the QCB over the recent past and additional policy manoeuvres could be likelyin the short-medium term.Table 6.3US Federal Funds Rate andQCB Repo Rate MovementsDate of Rate Change US Fed Funds Rate (%) QCB Repo Rate (%)09/08/2005 3.500 --11/08/2005 -- 4.40020/09/2005 3.750 --21/09/2005 -- 4.65003/10/2005 -- 4.85001/11/2005 4.000 --13/12/2005 4.250 --15/12/2005 -- 5.10031/01/2006 4.500 --01/02/2006 -- 5.35028/03/2006 4.750 --02/04/2006 -- 5.60010/05/2006 5.000 --11/05/2006 -- 5.85029/06/2006 5.25003/07/2006 -- 5.550Source: Qatar Central Bank and Financial Times.MONETARY POLICY 39