‘No change in Eibor calculation’
dubai — The UAE central bank’s plan to change the way a key interest rate used to price debt is calculated has been postponed, according to two people familiar with the matter.
For several months, banks that form part of a panel that contributes to the Emirates Interbank Offered Rate every day have been submitting interest rate quotes using both the current and proposed system, the people said, asking not to be identified because the information is private. The new method, which was supposed to be implemented this week, made the rate more volatile, they said.
The change was planned as the Federal Reserve seeks to boost borrowing costs further this year. The UAE typically follows US monetary policy decisions because its currency is pegged to the dollar.
The last time the central bank proposed changing the way Eibor is calculated was in 2009, when interest rates plummeted, according to Aarthi Chandrasekaran, the vice president for research at Shuaa Capital in Dubai.
“The prevailing mechanism of capturing Eibor could have been distorted due to the quicker pace of Fed rate movements and the underlying competitiveness of the local economy,” said Chandrasekaran.
“The end objective is to fix a rate that provides a fair representation of the prevailing market conditions and to present full transparency behind the process.” — Bloomberg