Introduction

Since its inception in 1993, Qatar Central Bank (QCB) has inherited the Qatar Monetary Agency’s monetary strategy of targeting the exchange rate. The formal framework for the exchange-rate policy is a fixed parity between the Qatari riyal (QR) and the United States dollar (USD) at QR 3.64 per dollar. Hence, the de facto priority objective of the QCB monetary policy is to keep the QR stable against the USD. Consequently, QCB monetary policy is drawn and implemented to manage the short-term interbank interest rates with a view to sustaining the fixed parity between the QR and the USD. The current QCB interest rates framework focuses on the average overnight interbank rate (AOIR). The QCB overnight Lending Rate replaced the Repo Rate in 2002 as the main indicator of QCB monetary policy stance. The liquidity concept key to QCB monetary policy is the commercial banks’ current-deposits account at QCB, since these funds can be immediately used as means of payment at the banks’ initiatives. Therefore, the aggregate current-deposits account is referred to as “primary liquidity” or “QR liquidity.”

Monetary Policy Committee

The primary responsibility of the QCB Monetary Policy Committee (MPC) is to formulate QCB’s monetary policy. The MPC is chaired by the Governor and includes the Deputy Governor, the Director of the Department of Economic Policies (DEP) and the Director of the Department of Public Debt, Banking Affairs and Issuance as members.

The Monetary Policy Division at the DEP constantly reviews the QR interest rates in view of developments in international interest rates, in particular, the US Federal Funds Rate and reports to the Director of the DEP. Based on the report, the Director of the DEP may choose to call upon the MPC to meet and discuss possible changes in the QCB’s monetary policy stance with the aim of maintaining stability in the local USD exchange market at fixed parity. The QR/USD interest rates differential is a major policy tool at the disposal of the MPC. Decisions taken by the MPC are announced to commercial banks operating in Qatar electronically and to non-bank public via local media.