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UAE interbank rates rise as central bank introduces new system

The new system shrinks the panel of banks from which quotes are used to calculate the rates to eight from 10

Gulf News

Dubai: Most UAE interbank offered rates (Eibor) rose on Sunday as the central bank introduced a new way of calculating them, seeking to make the system more transparent and reflect market conditions more accurately.

The one-month rate edged up to 1.93500 per cent from 1.92667 per cent on Thursday, while the one-year rate jumped to 3.03998 per cent from 2.93767 per cent. Only the overnight rate fell, to 1.36775 per cent from 1.50500 per cent.

Eibor rates, used in many UAE financial transactions, are calculated daily for maturities ranging from overnight to one year. In practice, interbank deals using Eibor rarely have maturities of more than one month, bankers say.

The new system shrinks the panel of banks from which quotes are used to calculate the rates to eight from 10 and increases pressure on the banks to give reasons for each of their quotes.

Banks are also encouraged to consider a wider range of trades and counterparties when submitting quotes, rather than only basing their quotes on trades with long-term bank clients to which they may lend relatively cheaply.

This means the new system could push up Eibor rates, though the impact is likely to be small because some banks had already expanded their reference points for quotes in the weeks before the system came into effect, bankers said.

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