QCB Interest Rates
QCB interest rate framework embraces three policy rates: QCB Deposit Rate (QCBDR), QCB Lending Rate (QCBLR), and QCB Repurchase Rate (QCB Repo or QCBRR).
QCBDR and QCBLR are the interest rates announced by QCB on overnight deposit and loan transactions between QCB and local banks through the Qatar Money Market Rate Standing Facility (QMR), respectively. The QCBLR is the key rate used by QCB to convey signals to the market revealing adjustments to its monetary policy stance.
The QMR facility is a double-featured monetary instrument encompassing two standing facilities, lending and deposits. All commercial banks operating in Qatar, can request access to the QMR facility where all transactions are executed electronically through the QMR system. Both facilities of the QMR are of various maturities ranging from 1 day (overnight) to 30 days with the primary objective of influencing the money market rates. Interest rates are fixed over the course of the day but (positively) vary with maturity over the 30 monetary-policy-day interval and are computed on a daily basis, based on QCBDR for deposit transactions and on QCBLR for loan transactions. Deposit and loan transactions per-bank per-day are subject to ceilings set by QCB.
Prior to January 22, 2006, the QMR facility was confined only to overnight transactions, where QCB announces QCBDR and QCBLR at the begging of each monetary-policy-day and where commercial banks can deposit with, and borrow from QCB overnight funds that can be extended to next day (rollover). Besides setting the initial interest rates (QCBDR and QCBLR), QCB also sets ceilings on deposit and loan transactions for individual bank utilizing the QMR facility. Effective lending and deposit rates are flexible over the course of day such that the lending rate is positively related to the total amount of funds available through the QMR lending facility, and the deposit rate is inversely related to the amount of fund available through the QMR deposit facility during the day. Therefore, movements in both interest rates, reflect the daily liquidity condition in the banking system as reflected by the amount of funds available through the QMR facility during the day.
QCB Repo operations are conducted in domestic government securities and are of two-weeks to one-month maturity. QCB sets the rate and duration of the repurchase agreements while the size and time of the repurchase transactions are initiated by commercial banks.
Given the fixed parity between the Qatari riyal and the US dollar (USD), QCB short-term interest rates policies have had to be subordinated to the fixed exchange rate policy. As such QCB overnight interest rates are closely related to its counterpart on the USD, the Fed Funds Rate—usually with positive margin.