Central Bank of UAE - CBUAE
The Central Bank of the UAE (CBUAE) will publish a new index for actual overnight interbank funding transactions in dirham. Image Credit: WAM

Dubai: The Central Bank of the UAE (CBUAE) will publish a new index for actual overnight interbank funding transactions denominated in UAE dirham from December 7, 2021.

The new index named DONIA [Dirham Overnight Index Average] is part of the apex bank’s new Dirham Monetary Framework implementation plan.

The objective of this new index is to provide market participants with data pertinent to the overall state of the actual interbank market, and to improve transparency in domestic money market activities.

Reference rate

DONIA is the effective overnight reference rate for the Dirham. It is computed as a volume-weighted money market rate for all actual overnight secured and unsecured funding transactions of Dh10 million or greater contracted by all banks operating in the UAE, captured through the UAE Funds Transfer System (UAEFTS).

The index will be published on UAE official working days by 09:30 hours local time on the CBUAE’s website, and via Bloomberg (Index Ticker “DONIA”) and Refinitiv Eikon (Instrument Code “DONIA”).

“The launch of DONIA facilitates implementation of the new Dirham Monetary Framework. We, at the CBUAE, are confident that the publication of this new reference rate will not only provide additional transparency to the Dirham money markets, but also help the CBUAE in ensuring overnight money market rates are aligned to prevailing Base Rate,” said Khaled Mohamed Balama, Governor of the CBUAE.

The index is constructed following global best practices, and in line with similar interbank indices published in other leading jurisdictions, accroding to CBUAE.

EIBOR to continue as benchmark

The CBUAE expects that this index will serve as an anchor for banks in determining factors relevant to their daily fixing of interbank rates, Emirates Interbank Offered Rater (EIBOR).

DONIA is expected to improve monetary policy transmission in the UAE, underpinned by the transparency in terms of the way it is computed, and the fact that it is a true reflection of actual local interbank market conditions.

The CBUAE has no plans to discontinue the EIBOR once the DONIA is published, as DONIA and EIBOR will co-exist in the domestic markets. At this stage, DONIA shall not be used to price financial market products offered or structured in the UAE.

What is EIBOR?
The Emirates Interbank Offered Rate, known by its abbreviation EIBOR, is the benchmark interest rate, stated in UAE dirham, for lending between banks within the UAE market.
The EIBOR, similar in purpose to the London Interbank Offered Rate (LIBOR), is a benchmark interest rate published daily by the Central Bank of the UAE that reflects an average of rates offered by major UAE banks for loans of short-term funding to other banks. It is based on the average interest rates at which UAE banks offer to lend unsecured funds to other banks in the UAE.
EIBOR is calculated daily by the Central Bank of the UAE and published for use as a general reference for market interest rates and is widely used to set other interest rates in the country. The methods of collecting the underlying rates and publishing the EIBOR were reformed in April 2018 to increase transparency and accountability in the process. Prior to this the central bank calculated this rate directly. Currently the rate calculation is outsourced to Thomson Reuters.