April 1, 2020 / 5:42 PM / 4 months ago

UPDATE 1-Lebanon's coronavirus lockdown piles pressure on flagging currency

* Lebanese pound about 15% weaker since March 15 lockdown

* Dollars in shorter supply, price of imports set to rise

* Banks mostly closed since lockdown

* Lebanon has defaulted on foreign currency debt (Adds coronavirus toll)

By Ellen Francis and Tom Perry

BEIRUT, April 1 (Reuters) - The battered Lebanese pound has weakened even more during a coronavirus lockdown, with banks blocking access to already scarce dollars, forcing up their price on the black market and the cost of imports the heavily indebted country relies on.

Since the government declared a medical emergency on March 15, Lebanon’s cash-strapped banks have limited their services to critical imports and paying out salaries in local currency while opening only a handful of branches.

The pound has since tumbled about 15%, trading at around 2,850 pounds per dollar on Wednesday compared with about 2,500 before the shutdown, importers and currency dealers said.

That is about 47% weaker than the official peg of 1,507.5 pounds to the dollar, a rate now available only to importers of wheat, medicine and fuel.

“There’s less and less cash available in the market, and this is one of the reasons why the black market rate is increasing,” said Hani Bohsali, general manager of Bohsali Foods, a major food importer.

The parallel market has been the primary source of cash during the country’s financial crisis, which saw it default on its foreign-currency debt on March 23 and launch formal debt-restructuring talks days later.

The government had sought in recent weeks to crack down on foreign exchange bureaus selling above an agreed rate of 2,000 pounds per dollar, with some shut down and others turning away customers seeking higher rates, making dollars more elusive.

Banks have now halted withdrawals which they had already capped at as little as $100 per week. They introduced controls late last year when Lebanon sunk into a crisis after capital inflows slowed and protests erupted against the ruling elite.

While there has been no announcement on a move to stop dispensing dollars or on whether such measures were temporary, sources at four banks said that since the lockdown only freshly deposited dollars or those transferred in from abroad could be taken out.

The government has extended the coronavirus lockdown until April 12, shutting nearly all businesses and the airport while enforcing an overnight curfew. Lebanon has recorded 479 infections and 14 deaths, the health ministry said on Wednesday.

Depositors have been forced to withdraw their dollars from ATMs that convert them to Lebanese pounds at the official rate, slashing the value and angering Lebanese already hit by sweeping job cuts and rising inflation.

Bankers have put reduced dollar circulation in recent weeks down to worldwide airport closures choking the flow of dollars typically brought in by travellers and cargo shipments of banknotes.

But that account was disputed by Michel Mecattaf, a shareholder in a Lebanese company that ships banknotes, who was quoted by local media as saying that cargo shipments for banknotes were continuing. (Reporting by Tom Perry and Ellen Francis; Writing and additional reporting by Eric Knecht; Editing by Hugh Lawson and Mark Potter)

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