The outlook for the United Arab Emirate’s banking sector is slowly improving. Interbank rates have fallen and markets are pricing-in further falls in the coming months – signs that monetary conditions are easing. The sector is no longer as leveraged. And banks have passed through the shock of the housing market collapse and the uncertainty over quasi-sovereign debt.
However, we need to be aware of the remaining challenges. These include non-performing loans resulting from the softer housing market and debt restructuring. Monetary policy is also constrained, leading to more volatile than necessary credit and business cycles.
Given that the UAE dirham is pegged to the US dollar and that capital can flow freely in and out of the country, one would expect it to have interest rates similar to those of the US. There are three reasons for the difference.
and what may these three reasons be?
ReplyDelete