As of July 12, the UAE Central Bank will introduce new deposit facilities for banks in the name of “overnight deposit facilities” through which traditional banks operating in the country can deposit their excess liquidity with the Central Bank on a per-night basis.
His Excellency Abdul Hamid Saeed, Governor of the Central Bank of the United Arab Emirates, said: The provision of these new facilities reflects the continuous efforts of the Central Bank aimed at achieving the objectives of its monetary policy and the development of the money market in the UAE, and these new facilities would support banks operating in the country in managing the daily liquidity available to them Proactively, it helps align overnight cash market interest rates with the base rate under normal circumstances.
Offering one-night deposit facilities is considered a first step in implementing the new framework for cash operations in dirhams announced earlier this year, and these facilities will be an essential tool for managing excess liquidity with the banking sector in the UAE, before launching the cash permission program, and it will be resolved Place of issuance of certificates of deposit for the maturity period of one week.
When offering a one-night deposit facility, the general position of the central bank's monetary policy will be determined by the interest rate on these facilities, which will become the main interest rate and will be referred to as the base rate.
Accordingly, the Central Bank expects that the money market prices will be consistent overnight with the base rate, under normal circumstances.
The base rate, which will be linked to the interest rate on excess reserves approved by the US Federal Reserve, will also provide a minimum overnight effective interest rate for the money market prices.
The Central Bank will provide similar facilities for overnight deposit facilities to meet the needs of licensed financial establishments that perform all of its business or activities or part of it in accordance with the provisions of Islamic Sharia, and until such similar facilities come into effect, the Central Bank will continue to provide Islamic deposit certificates based on commodity murabaha for a one-week maturity period , Which will be breakable on a daily basis.