(MENAFN- Gulf Times) Domestic population pressures may push Qatar's inflation to 2.5% in 2016 from 2% this year, Samba Financial Group has said in a report.
Consumer prices have fallen sharply since the index was rebased and re-weighted in January this year, with inflation standing at 0.9% year-on-year (y-o-y) in April. The major outcome of the change in the index is a smaller weighting of the rental component, Samba said in its latest country report.
Rental inflation has been elevated over the last twelve months, offset by the strong dollar and soft international commodity prices, which have kept a lid on the overall index. "We expect these trends to persist," Samba said.
Despite the "relatively benign inflation outlook," real estate prices continue to climb at a rapid pace. Having reached 43% y-o-y in January, the official figures show that prices have since moderated somewhat.
The pace of growth was flagged as a cause for concern by the International Monetary Fund, which recommended a fee/tax levied on acquisitions (exempting first-time buyers). This would seek to punish speculators who, according to anecdotal evidence, have been buying off-plan properties and selling for a profit before they have been built (known as flipping).
"Of course, there are solid inflationary fundamentals at play, the increasing population and project land buying, but the break-neck rate of growth has led to calls for better data to enhance monitoring of any asset bubble," Samba said.
Another "potential pressure" point for the economy is the banking system. Although banks are well capitalised and liquid at the moment, the increasing lending opportunities coupled with lower hydrocarbon receipts, and therefore a potential decline in deposits, requires monitoring.
Credit growth ticked down slightly to 12.1% in April, from 13.3% in March. Deposit growth fell slightly to 12.2% in April from 12.9% in March.
This left the loan-to-deposit ratio down slightly from the previous month at 107.9. Despite the seemingly strong deposit growth, it is worth issuing a note of caution.
Qatar has a higher public deposit concentration than both UAE and Saudi Arabia. As the previously large hydrocarbon receipts to the state and other quasi-government entities begins to ease, this may feed through to lower deposits in the banking system.
According to Samba, any significant decline in public sector deposits would mean tighter system liquidity.
In fact, public sector deposits have actually been declining on a y-o-y basis since December 2014, falling by 8.4% pace in April. Although total deposits still rose year on year in April, the public sector deposit trend is certainly worth keeping an eye on given that lending opportunities are set to increase, the Samba report said.
The contracting public sector deposit base could be a precursor for tighter liquidity. Despite this, the QIBOR looks relatively subdued compared to historic levels, though it has ticked up over the last month, Samba said.
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