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30 November 2023

UAE Central Bank may intervene to reduce Eibor

The UAE Central Bank intervened in October last year when Eibor was close to two per cent. (EB FILE)

By Waheed Abbas

The UAE Central Bank is expected to intervene to bring down Emirates Interbank Offered Rate (Eibor), which has risen since the start of the year.

The three-month Eibor has risen from 1.88 per cent in early January to 2.208 per cent yesterday, analysts said.

The Central Bank intervened in October when Eibor was close to two per cent, prompting Standard Chartered Bank analysts to predict that the apex bank will step in again to rein in the interbank rate. "While lending activity remains muted and economic forecasts for the UAE are relatively weak, we do not rule out further intervention from the Central Bank to push rates lower," said Marios Maratheftis, Head of Research, and Shady Shaher, Economist, Mena, at Standard Chartered Bank, in a report. They said that fiscal expansion during the economic downturn in 2009, especially in countries such as Saudi Arabia and the UAE, helped Gulf countries weather the storm.

The 2010 outlook is more promising, but the recovery is still in its early stages, and policy in the region will need to stay expansionary, especially as credit growth is expected to remain tight.

In a note sent to Emirates Business yesterday, the analysts said that the region will return to positive growth this year mainly due to high oil prices and fiscal spending driving the GDP expansion in 2010. They added that the trajectory of oil prices and the willingness of governments to keep investing in infrastructure projects will be two important drivers of growth in the Gulf Co-operation Council in 2010.

They, however, projected that Opec is unlikely to cut production significantly. Oil production cuts were a significant drag on growth in 2009, and a lack of further notable cuts should help the oil sector make a positive contribution to economic growth in 2010.

In the UAE, analysts said that infrastructure is key to Abu Dhabi's diversification.

Infrastructure spending in 2009, mainly in Abu Dhabi, picked up some of the slack in the UAE economy. Strong investment in infrastructure projects is likely to continue in 2010 and beyond.

The Government of Abu Dhabi has identified infrastructure development as key to achieving its diversification plans.

The Government of Dubai is also continuing to focus on infrastructure spending. The Roads and Transport Authority of Dubai has earmarked $2.04 billion (Dh7.5bn) for some 120 projects in 2010, including 13 new projects.

Saudi Arabia plans to spend $400bn on infrastructure projects over the next three to four years. The 2010 budget is the largest in Saudi Arabia's history, and fiscal stimulus should be positive for growth in 2010. And $69.3bn of the 2010 budget has been allocated to infrastructure projects including power generation, construction and transport. The kingdom continues to broaden the geographical reach of its infrastructure spending, not just focusing on the main urban centres but spreading spending across all 13 regions of the country.

Standard Chartered analysts projected that the Dubai property market is still undergoing a correction and the reforms should help to improve its long-term efficiency, transparency and appeal. The analysts said Gulf governments should not rely only on oil revenues and banks for funding, but should also seek to develop local-currency bond markets.


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