Banks

Banks in the UAE have very good liquidity, represented by the abundant amount of certificates of deposit held with the Central Bank, its governor said on Sunday.

The UAE would also follow any rise in interest rates in the United States with an increase in its own key interest rate, Mubarak Al Mansouri told reporters on the sidelines of an Arab finance ministers event in Abu Dhabi.

He also said that he does not believe there is any pressure on the dirham and that any volatility seen in the forwards market has been limited.

Mr Al Mansouri reiterated that the UAE would continue with the dirham’s peg of Dh3.6725 to the US dollar.

The outlook for the country’s banking sector is improving after a difficult start to 2016, aided by an improvement in oil prices, which hit the US$50 per barrel level for the first time in 2016 on May 26, Mr Al Mansouri said.

The dirham has weakened to a premium of around 60 points against the dollar in the one-year forwards market since last August from around zero previously, as low oil prices have caused concern about the state finances and external positions of the Gulf oil exporters.

But the movement has been smaller in dirham forwards than it has been for some other Gulf currencies such as the Saudi Arabian riyal, because the UAE is believed to have stronger government finances and a more diversified economy. The dirham has rebounded from around 200 points hit in December and January.

Month-on-month deposit growth in the banking system stalled in January and February because of low oil prices, but expansion has since resumed, according to the latest central bank data.

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