• Home
• /
• Local business

Rates Ease after Central Bank Move

DUBAI - The Emirates Interbank Offered Rates (EIBOR) inched downwards a day after the UAE Central Bank announced a dollar-dirham swap facility to ease a currency shortfall in the local banking sector.

The benchmark three-month interbank offered rate, at which banks lend to each other, eased to 4.3625 per cent from 4.425 per cent on Wednesday.

The Central bank on Thursday set the terms for the swap facility, saying that it would buy US dollars at the fixed rate of Dh3.6720 per dollar in the spot market and would sell forward at rates ranging from Dh 3.6729 for one-week to 3.7278 for 12 months.

Bankers said the swap facility would create more resources for the financial institutions to raise money in order to meet their financial obligations. They said that the central bank’s decision was a continuation of its earlier measures of setting up facilities totaling Dh120 billion, along with the finance ministry, for banks facing tight liquidity.

In the first three quarters of 2008, the banks in the country had lend Dh200 billion to the real estate sector. The economy in recent months has also suffered an outflow of funds as UAE stocks were sold by foreign investors trying to cover their losses in global markets.

The bankers see the current financial year closing with total lending ranging between Dh950-1000 billion.

For the next year, Central Bank of the UAE has already directed the banks and financial institutions to be careful in doling out credits, putting a target of not more than 10 per cent for credit expansion.

In order to fill the vacuum created by the flight of portfolio investments, Central Bank of had setup two special counters for banks and financial institutions to seek funds.

Money was given out on the basis of asset base of the recipient bank, to keep meeting the requirements of trade and financing to development projects.

Industry Speaks:

Faisal Hasan

Head of Research

Global Investment House

“The central bank’s move to buy US dollars against the dirham spot and sell dollars against the dirham in a forward contract at the same time will help provide additional dirham liquidity into the banking system. This would help inject more liquidity into the system. With more money into the system should help ease the credit conditions which in turn may lead to EIBOR rate coming down.”

M R Raghu

Head of Research

Kuwait Financial Centre (Markaz)

“The UAE’s move is useful in the short-term. Going by what happened, the measure was definitely demanded by banks. But the latest measure to bring back liquidity may not be sufficient; more measures are needed to help banks get out of this predicament.”

Sanjay Uppal

Chief Financial Officer

Emirates NBD

“This is a very positive move by the UAE Central Bank and demonstrates effective use of various levers at its disposal to ease liquidity situation in the market. The rates are reasonable to ensure the effectiveness of this new facility.”