x Abu Dhabi, UAESunday 21 January 2018

UAE bank emergency funds having limited effect

If the interbank lending rate is any judge, the credit crunch could still hit the local economy.

The Central Bank's emergency measures to ease a credit crunch in the UAE appear to be having a limited effect - if the interbank lending rate is any judge. Rather than declining on the Central Bank's intervention, as had been hoped, interbank lending rates rose, providing further evidence that the credit crunch could still destabilise the economy. Most observers think that few, if any, banks in the UAE have taken advantage of the emergency lending facility from the Central Bank. "The package was not as generous as people had thought when the original announcement was made," said Mushtaq Khan, an economist at Citigroup.

Last week, the UAE Government took special measures to ease a liquidity squeeze by injecting Dh50 billion (US$13.6bn) into the local money markets. Today, the central bank of Kuwait followed suit, offering one-week and one-month overnight funds to lenders, according to Reuters, although no details of the financing have been revealed. Bank lending rates throughout the Gulf shot up today, with the Emirates Interbank Offer Rate (Eibor) breaking four per cent for the first time since January, hitting 4.19 per cent, compared to 3.96 per cent on Sunday. In Saudi Arabia rates hit 4.06, another high.