UAE Central Bank to launch new index for interbank market

The Central Bank of the United Arab Emirates (CBUAE) will release a new index of overnight interbank financing transactions in dirham.
Image Credit: WAM

Dubai: The Central Bank of the United Arab Emirates (CBUAE) will release a new index of overnight interbank financing transactions denominated in UAE dirhams from December 7, 2021.

The new index named DONIA [Dirham Overnight Index Average] is part of apex bank’s new dirham monetary framework implementation plan.

The objective of this new index is to provide market participants with relevant data on the general state of the current interbank market and to improve the transparency of the activities of the national money market.

Reference rate

DONIA is the effective overnight reference rate for the Dirham. It is calculated as a volume-weighted money market rate for all real overnight guaranteed and unsecured financing transactions of Dh 10 million or more contracted by all banks operating in the UAE, captured through the banking system. UAE remittance transfer (UAEFTS).

The index will be published on official UAE business days at 9:30 am local time on the CBUAE website, and via Bloomberg (Index Ticker “DONIA”) and Refinitiv Eikon (Instrument Code “DONIA”).

“The launch of DONIA facilitates the implementation of the new monetary framework in dirham. We at the CBUAE are confident that the publication of this new benchmark rate will not only provide additional transparency to the dirham money markets, but will also help the CBUAE ensure that overnight money market rates are aligned with the base rate in effect, ”said Khaled Mohamed. Balama, Governor of the CBUAE.

The index is constructed according to global best practices and in accordance with similar interbank indices published in other leading jurisdictions, according to the CBUAE.

EIBOR remains the benchmark

The CBUAE expects this index to serve as an anchor for banks to determine the relevant factors for their daily setting of interbank rates, Emirates Interbank Offered Rater (EIBOR).

DONIA is expected to improve the transmission of monetary policy in the UAE, underpinned by the transparency of how it is calculated and the fact that it faithfully reflects the actual conditions of the local interbank market.

CBUAE does not intend to remove EIBOR once DONIA is released, as DONIA and EIBOR will coexist in national markets. At this point, DONIA should not be used to value financial market products offered or structured in the United Arab Emirates.

What is EIBOR?

The UAE Interbank Offered Rate, known by its abbreviation EIBOR, is the benchmark interest rate, expressed in UAE dirham, for interbank loans in the UAE market.
The EIBOR, similar to the London Interbank Offered Rate (LIBOR), is a benchmark interest rate published daily by the Central Bank of the United Arab Emirates that reflects an average of the rates offered by the major banks of the United Arab Emirates for loans short-term funding to other banks. It is based on the average interest rates that UAE banks offer to lend unsecured funds to other UAE banks.
The EIBOR is calculated daily by the Central Bank of the United Arab Emirates and published as a general benchmark for market interest rates and is widely used to set other interest rates in the country. The methods for collecting underlying rates and publishing EIBOR were reformed in April 2018 to increase transparency and accountability in the process. Previously, the central bank calculated this rate directly. Currently, rate calculation is outsourced to Thomson Reuters.

About Tammy N. McFarlane

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