U.A.E. Interbank Rate Drops to 2-Month Low as Deposits Increase

  • Three-month Eibor retreats to its lowest level since December
  • Bank deposits climbed $6 billion at the end of the year

A key interest rate in the United Arab Emirates fell to the lowest in almost two months on Sunday after bank deposits in the second-biggest Arab economy swelled and as the prospect of rate increases in the U.S. fades.

The three-month Emirates Interbank Offered Rate, a benchmark used to price loans, fell 1.2 basis points to 1.01786 percent, its lowest since Dec. 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 U.S. as early as March has now faded which also provides support to local rates.”

Bank liquidity in the U.A.E. tightened in 2015 as the plunge in oil prices slowed deposit growth below the increase in lending. U.S. 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 U.A.E. keeps the dirham pegged to the dollar and usually follows U.S. interest-rate policies.

Bank deposits in the U.A.E. climbed 22.1 billion dirhams ($6.02 billion) in December, the biggest monthly increase since May 2014, to 1.47 trillion dirhams. Deposits had climbed by 14.1 billion dirhams in November.

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