Rising EIBOR Reflecting Low Confidence

The tick up in the Emirates Interbank Offered Rate (EIBOR) over recent weeks is a warning sign that confidence and liquidity within the banking system may be waning. Three-month EIBOR has spiked from 1.888% at the start of the year to 2.209% on February 25. With UAE banks generally linking their domestic lending rates to EIBOR, the recent uptick in the interbank rate will therefore increase costs for private sector borrowers and consequently further dampen the weak economic recovery that we are pencilling in for this year (we see real GDP growth hitting 2.8% in 2010, after an estimated 3.2%

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