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BEIRUT, March 5 (Reuters) - An IMF mission to Lebanon urged a "cautious approach" to interest rates to support deposit inflows and de-dollarisation, according to a press release issued on Thursday at the end of a visit to Lebanon.
"Risks over how the global crisis will unfold, combined with domestic political uncertainty ahead of the June parliamentary elections, calls for a continuation of the current prudent monetary stance in the near term," it said.
Central Bank Governor Riad Salameh has said that interest rates will be stable and may even fall in 2009.
A surge in remittances by expatriates helped banks increase their deposit base by 15 percent last year. Deposits are expected to grow by at least 7 percent this year despite a possible decline in remittances, Salameh said this week.
Remittances have been a key support for the Lebanese economy and government finances during the global crisis.
The IMF also said reducing Lebanon's debt-to-GDP ratio was "the top priority" and called on Lebanon to implement tight fiscal policies after the June 7 election. "The objective should be to avoid an increase in the deficit," it said.
The team also said Lebanon should continue to be vigilant in bank supervision.
The IMF noted that Lebanon's financial sector has had no exposure to the global financial crisis and that "it remains very liquid and amply capitalized, while economic growth has remained strong".
Tight central bank regulation has stopped banks from investing in risky assets, limiting Lebanon's exposure to the credit crunch.
However the IMF cautioned that there remained challenges "as spillovers from the global recession and the weakened outlook in the Gulf will be felt in Lebanon".
Around a third of Lebanon's workforce are employed in the Gulf. Some have already started to return, laid off by employers feeling the pinch of slowing economies.
"Remittances, tourism, merchandise exports, foreign direct and portfolio investment, and deposit inflows are all likely to be adversely affected," the IMF said. (Writing by Yara Bayoumy; Editing by Ron Askew)