DUBAI: A key interest rate in the UAE fell to the lowest in almost two months after bank deposits in the second-biggest Arab economy swelled and as the prospect of rate increases in the US fades.
The three-month Emirates interbank offered rate, a benchmark used to price loans, fell 1.2 basis points on Sunday to 1.01786 per cent, its lowest since December 17, according to data compiled by Bloomberg. The rate rose or remained unchanged in each of the 12 months in 2015 before falling less than one basis point in January.
“The addition in bank deposits in November and December has helped support liquidity in the banking system and stabilize the Eibor,” Apostolos Bantis, a credit analyst at Commerzbank AG, said by phone from Dubai. “The expectation for another rate hike in the US as early as March has now faded, which also provides support to local rates.”
Bank liquidity in the UAE tightened in 2015 as the plunge in oil prices slowed deposit growth below the increase in lending. US Treasury yields have dropped this year after turmoil in global markets left traders doubting whether the Federal Reserve would carry out the four rate increases targeted for 2016. The UAE keeps the dirham pegged to the dollar and usually follows US interest-rate policies.
Bank deposits in the UAE climbed AED22.1 billion in December, the biggest monthly increase since May 2014, to AED1.47 trillion. Deposits had climbed by AED14.1 billion in November.
Meanwhile, trade finance in the UAE and Middle East is growing, but it faces challenges relating to the economic slowdown, high cost of compliance, tightening of liquidity and new banking rules, according to bankers.
Financing of trade has long been essential to this country, with UAE non-oil trade growing by 0.65 per cent to AED1.07 trillion in 2014 from a year earlier, according to the Federal Competitiveness and Statistics Authority.
In the first six months of last year, trade reached AED534 billion. Non-oil trade in the UAE in the first nine months of last year remained stable at AED792bn compared with the year-earlier period, according to the Federal Customs Authority.
Globally, trade was forecast to grow 2.8 per cent last year, up from 2.5 per cent in 2014, the World Trade Organization forecast last September. World trade growth is estimated at 3.9 per cent for this year.
