UAE Central Bank increases interest rates on CDs by 0.25pc

The UAE Central Bank has announced it has increased interest rates on Certificates of Deposit which it issues to banks here by a quarter per cent.

This increase comes close on the heels of a quarter per cent hike by the Central Bank last month.

"The increase in interest rates came into effect from yesterday in line with the new level of interbank interest rates on US dollar deposits in the international financial markets as from Wednesday, August 11, 2004," said a statement from the Central Bank.

The US Federal Reserve raised the interest rate on inter-bank lending by a quarter per cent on Tuesday from 1.25 per cent to 1.50 per cent.

Bankers said that since the UAE dirham is pegged to the US dollar, interest rates see-saw according to US interest rates.

"Currently, the CD rate (borrowing or lending) is 1.4 per cent for one month, 1.5 per cent for three months, 1.75 per cent for six months and 2.1 per cent for one year," said a local banker.

"The rise in interest rates on CDs will affect the market rates relating to interbank borrowing or lending which will go up accordingly," he added.

The Certificates of Deposit which the Central Bank issues to banks operating in the country are the mechanism through which interest rates on UAE dirhams are changed in the banking system and which banks use as an indicator for accepting deposits as well as for extending loans to customers.