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UAE Central Bank to Offer Dirham-Dollar Swaps

DUBAI - The United Arab Emirates central bank will allow lenders to exchange dollars for dirhams under a new swap facility as it moves to ease a liquidity crunch in the second-biggest Arab economy.

All banks operating in the UAE, “regardless of whether or not they have a shortfall in their dirham net position,” may use the facility, the Abu Dhabi-based bank said in an e-mailed statement on Wednesday. The central bank will “buy dollars against the spot dirham and sell dollars against the forward dirham at the same time.”

The facility will be available for periods of one week, one month, two months, three months, six months, nine months and 12 months, according to the statement.

Bank lending in the UAE is expected to have slowed this quarter as the worst global financial crisis since the Great Depression crimped liquidity. The UAE in October announced plans to pump Dh70 billion ($19 billion) into the banking industry, set up a $13.6 billion credit facility and guaranteed deposits of all local banks and some foreign lenders in a bid to relieve pressure from the global credit crisis.

The UAE central bank has kept its benchmark repo rate steady at 1.5 per cent since October 8, not matching cuts made by the US Federal Reserve on the last two occasions. The dirham is pegged to the US dollar and cuts in US interest rates are usually matched by the UAE.

One-month interbank rates in the UAE were unchanged at 4.3938 per cent on Wednesday.