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UAE interbank rates at 7-month low, may fall further

Dirham forwards stay near one-month lows, Dubai CDS down.

October 12, 2010 8:38 by

United Arab Emirates interbank offered rates fell to seven-month lows on Monday, showing improved liquidity in the oil producer’s 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, with banks exposed to Dubai debt, but last month’s debt restructuring deal 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 percent at the central bank’s fixing on Monday, from Sunday’s 1.77625 percent, still well above the Saudi benchmark at 0.34713 percent .

“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.

State-owned Dubai World sealed a formal deal in September to restructure $24.9 billion of debt, helping the Gulf Arab emirate draw demand of over $5 billion for its first bond offering since its November 2009 debt crisis.

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 $1 billion 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.

(Reporting by Martina Fuchs and Martin Dokoupil; editing by Stephen Nisbet)

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