Font Size

- Aa +

Wed 12 Aug 2009 04:30 PM

Font Size

- Aa +

UAE interbank rates slip, more measures seen needed

The UAE's three-month interbank offered rate falls to 2.3% on Wednesday from 2.45% on Aug 4.

UAE interbank rates are likely to extend falls after the central bank mulled a new mechanism last week, but more measures will be needed to boost lending and revive the economy, bankers said on Wednesday.

Rates have fallen about 15 basis points since the country's bank regulator said it was in talks to establish an official interbank offered rate for the dirham to better reflect market conditions.

"The central bank sent a strong message to banks that it wants lower short-term rates and banks are reciprocating (its) interest ... it appears there are results already," a treasury manager at an Abu Dhabi-based bank said.

The central bank has said no measures were needed to bridge the gap between loans and deposits at UAE banks, which has left banks short of liquidity to extend new loans. But some analysts say the lender of last resort may have to take more overt action to rectify the problem.

"This alone may not be sufficient to bring rates down. Some other measures such as reduction of reserves banks maintain with the central bank could help improving liquidity and more lending," the banker said.

The UAE's three-month interbank offered rate fell to 2.3 percent on Wednesday from 2.45 percent on Aug. 4.

The six-month rate has dropped to 2.6 percent from 2.80 percent while the one-year rate is at 2.85 percent, from 3.01 percent on Aug. 4.

The central bank has yet to provide details on how a new Eibor mechanism would work and at what level it would prefer interest rates to settle.

"Ultimately, they want Eibor rates to be lower ... rates may go down another 30 to 40 basis points," said Sunil Madham, director, global markets and treasury at Emirates-NBD.

The rates will continue to fall until they find a new level acceptable to the central bank, said the Abu Dhabi bank's treasury manager.

A Central Bank treasury official declined to comment on the EIBOR rates. "We are monitoring the rates," he said. (Reuters)

Digital magazine: Read the latest edition of Arabian Business online

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.