Dubai: A key interest rate in the UAE fell to the lowest in almost two months after bank deposits in the second-biggest Arab economy swelled and as the prospect of rate increases in the US fades.
The three-month Emirates Interbank Offered Rate, a benchmark used to price loans, fell 1.2 basis points on Sunday to 1.01786 per cent, its lowest since December 17, according to data compiled by Bloomberg. The rate rose or remained unchanged in each of the 12 months in 2015 before falling less than one basis point in January.
“The addition in bank deposits in November and December has helped support liquidity in the banking system and stabilise the Eibor,” Apostolos Bantis, a credit analyst at Commerzbank AG, said by phone from Dubai. “The expectation for another rate hike in the US as early as March has now faded, which also provides support to local rates.”
Bank liquidity in the UAE tightened in 2015 as the plunge in oil prices slowed deposit growth below the increase in lending. US Treasury yields have dropped this year after turmoil in global markets left traders doubting whether the Federal Reserve would carry out the four rate increases targeted for 2016. The UAE keeps the dirham pegged to the dollar and usually follows US interest-rate policies.
Bank deposits in the UAE climbed Dh22.1 billion in December, the biggest monthly increase since May 2014, to Dh1.47 trillion. Deposits had climbed by Dh14.1 billion in November.
