New interbank rates to be set by Central Bank in early September

Wednesday saw a top official declare that the UAE central bank will initiate a new benchmark interest rate for interbank lending, in the first half of September.

It was announced by the central bank earlier this month that it had entered talks with local banks, in order to create a new mechanism to determine a reference point for the short-term interest rates at which banks borrow from each other. The bank took this step fearing the stubbornly high interbank rates, aka Emirates Interbank Offered Rate, or Eibor.

"To finalize the project it will probably take until the first half of September," Mohamed Al Tamimi, assistant executive director of treasury at the central bank told Reuters. It is on the basis of inputs from 10 local and foreign banks, which are active in the interbank market that the Eibor is presently calculated.

It was forwarded by the regulator in its statement that it has been endeavoring to ensure that the offered rates are a "fair representation of the prevailing market conditions."

"The interbank rates are a widely followed benchmark and its movements have widespread ramifications for both individual and corporate borrowers. Many of the mortgages and corporate bonds are linked to the interbank rate and interest payments are periodically adjusted to reflect the changes in Eibor," said Al Tamimi.