Week’s UAE Eibor volatility highest in almost five years

Eibor UAE rates fluctuate between +4.4% and -4.7% in 5 days

ABU DHABI 27 March, 2017: During the past five [working] days, interest rates charged by Emirates Inter Bank Offered Rate (Eibor) have fluctuated significantly, between 4.4 per cent and 4.7 per cent, after the Central Bank of the UAE raised its certificates of deposit (CD) rates by 25 basis points, following a similar move by the US Federal Reserve nearly one week ago.

The CD issued by the Central Bank of the UAE to banks that operate throughout the nation represent the instrument of monetary policy, through which the effects of changing interest rates are transferred to the national banking system.

central bank

Reports by the Emirates News Agency (Wam) notes that interest rates charged by UAE banks for inter-bank transactions on a yearly basis jumped by 4.4 per cent to 2.14 points from 2.05 points last Monday, 20th March, according to data from the Central Bank of the UAE.

The volatility in interbank rates during this short period is the highest in almost five years, as Eibor rates were close to 2.14 points in 2011.

Rise Expected

Financial experts are expecting 2017 to see a further rise in interest rates on deposits, while highlighting that this is unlikely to have a major impact on banks raising their interest rates on loans, as the interest rate increase is due to the AED peg to the US dollar, and not based on other economic factors.

The increase in the interest rates on certificates of deposit, according to other periods offered by the Central Bank of the UAE, rose for 6 months, from 1.66 points one week ago to 1.67 points today, after falling from 1.438 points to 1.42 points for 3 months, and fluctuating between 1.01 points on the month to 0.99 points from 0.85 points, to 0.855 points for one week, and from 0.68 points to 0.67 points during one night.

The Central Bank of the UAE currently calculates Eibor rates according to the mechanism in place since October 2009, which depends on the calculation of average interest rates that are offered daily by 11 selected banks that operate in the domestic market, excluding the two highest prices and the two lowest prices from the approved list of banks.