UAE interbank rates at seven-month low

The UAE interbank offered rates (Eibor) fell to seven-month lows on Monday, showing improved liquidity in the banking sector and market watchers saw room for a further decrease. UAE interbank rates had been keeping high over past months, mainly on the longer end, but last month's debt restructuring deal by Dubai and a flood of dollar liquidity on global markets have helped to ease some pressure. The benchmark UAE one-month offered rate fell to a seven-month low of 1.73875 per cent at the central bank's fixing on Monday, from Sunday's 1.77625 per cent, still well above the Saudi benchmark at 0.34713 per cent. "Liquidity in the market has improved during 2010," said Stephen Jordan, general manager for liquidity management and interest rate products at the National Bank of Abu Dhabi. "With more issuance expected from UAE entities within the coming months we would expect the situation to improve further as a proportion of the issuance proceeds should remain in the UAE banking system for a period of time, helping the overall loan to deposit ratio," he said. "In terms of Eibor rates, I expect them to reduce further as liquidity in the UAE market improves." A chase for deposits made some banks quote higher rates at daily fixings in the past, which the central bank has said did not reflect true market rates. Dubai World sealed a formal deal in September to restructure $24.9 billion of debt, helping the emirate draw demand of over $5bn for its bond offering. Dubai's utility Dewa plans to hold fixed income investor roadshows in London this week, a source at one of the arrangers said last week. Dewa issued a $1bn five-year bond in April, drawing hefty demand. UAE one-year currency forwards were little changed on Monday after falling to 15 points, their lowest level in over a month, last week, implying the dirham will hold near its 3.6725 peg to the greenback over a one-year period. The Saudi riyal forwards also touched the lowest levels in at least a month. "Today the dollar/dirham and dollar/Saudi riyal forex swaps have been pretty quiet," said Lyndon Loos, head of forex trading for Middle East and North Africa at Standard Chartered. "We feel immediate support of the 12-month dollar/dirham is at par and on the dollar/riyal at -150," he said. Dubai's five-year credit default swaps, the cost of insuring the emirate's debt, fell to 377 basis points last week, their lowest since November 2009, well below around 634 points in February. They stood at 381 points on Monday, down from Friday's 388 points.