Iraq is in talks with six or seven foreign banks interested in entering the Iraqi market, despite insurgent attacks against financial institutions such as the central bank, the bank’s governor said on Wednesday.
Central Bank Governor Sinan Al Shibibi told Reuters that the central bank’s policy interest rate, now at 6 per cent, was appropriate for the time being and in line with core inflation, which was holding steady at 3 per cent in June.
“There are some foreign banks who have interest to join forces with domestic banks and we are actually negotiating with a lot of them … There are applications for licences,” he said in an interview conducted in English.
“There are banks from the Gulf and I think two to three from Europe; I think six to seven (banks) is quite a good number.” He did not name them.
Among those lenders who submitted applications to operate in Iraq are Iranian and Lebanese lenders, Waleed Eedi, acting director-general of banking supervision, said in a news conference later on Wednesday.
Suicide bombers and gunmen stormed the central bank earlier this month, killing 18 people, and fought a 1-1/2 hour gunbattle with security forces. A second suicide attack took place last Sunday against the Trade Bank of Iraq.
But Shibibi shrugged off concerns that a fragile security situation and a delay in forming a new government after March elections would deter foreign investment.
“These are very long-term objectives; I think it is not going to affect investment decisions,” he said.
The central bank cut its key policy rate by 100 basis points to 6 per cent in April in reaction to subdued inflation.
Shibibi declined to say if the central bank is likely to adjust interest rates further this year.
“(The interest rate) tallies with inflation very well now … I think the level of inflation is quite good, and we don’t actually anticipate any changes of monetary policy in (coming) months,” he said.
Iraq’s official interest rate is more of a guide to bank rates than a direct monetary mechanism, as the banking sector is small and capital markets are underdeveloped.
Iraq’s formal economy, as it pulls out of years of sectarian carnage that followed the 2003 US-led invasion, is dominated by the oil sector.
The governor did not expect the country’s budget deficit to widen in 2010 as oil prices, which traded around $ 76 a barrel on Wednesday, were not that far from Iraq’s budget estimate, adding the Iraqi budget outlook was “more or less” stable on the back of the recent rise in oil prices.
“But I think there will be more demand for development projects … because of the fact that you had some kind of political instability and election, so a lot of the implementation did not go through,” he said. “Probably there will be a drive for implementation of projects, and this will exert some pressure on the budget,” he said.
Iraq’s cabinet approved a 2010 budget of 78.73 trillion Iraqi dinars based on an oil price of $ 62 per barrel, entailing a budget deficit of 17.95 trillion dinars.
The central bank governor also said he did not expect any major disruption to the country’s economy from the current political wrangling and delay in forming a government.
The Iraqi economy, driven mainly by oil production, is expected to grow by 7 per cent this year, he added.