Rates fall following Central Bank’s move

United Arab Emirates (UAE) central bank’s decision, to introduce a new mechanism for inter-bank interest rates last week, has further declined interest rates. The central bank’s move to have an official inter-bank offered rate for the dirham has caused 15 basis points decline in interest rates.

The interbank interest rate, an important barometer to ease lending rates, is the interest rate charged by banks to borrow each other.

A treasury manager at an Abu Dhabi bank said: “The central bank sent a strong message to banks that it wants lower short-term rates and banks are reciprocating interest. It appears there are results already.”

Emirates NBD and Abu Dhabi Commercial Bank reduced interest rates by 0.05 percentage points, following an announcement regarding the new mechanism by the central bank. The National Bank of Abu Dhabi too cut interest rate ranging between 0.15 and 0.25 percentage points. The three-month inter-bank offered rate declined to 2.3 per cent against 2.45 percent on Wednesday.

It is not clear till now how the new Eibor mechanism will work and in what range the central bank wants the interest rates to settle.