The Central Bank announced that, as of July 12, 2020, it will provide new deposit facilities called “overnight deposit facilities” through which traditional banks operating in the country can deposit the excess liquidity they have with the Central Bank on a one-night basis.

The Central Bank, in a statement yesterday, stated that offering “one-night deposit facilities” is a first step in implementing the new framework for cash operations in dirhams announced earlier this year, pointing out that these facilities will be an essential tool for managing excess liquidity in The banking sector in the UAE, before the launch of the cash permits program, will replace the issuance of certificates of deposit for a one-week maturity period.

He continued «Central»: «When offering deposit facilities for one night, the general position of monetary policy of the central bank will be determined through 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 for one night with the base rate, under normal circumstances. ”

According to the Central Bank, the base rate, which will be linked to the interest rate on excess reserves approved by the US Federal Reserve, will provide a minimum effective interest rate for the money market prices for one night.

The Central Bank will also provide facilities similar to one-night deposit facilities, to meet the needs of licensed financial establishments that perform all of their business or activities, or part thereof, in accordance with the provisions of Islamic Sharia.

He pointed out that until these similar facilities enter into force, the Central Bank will continue to provide Islamic Depositary Certificates based on Murabaha commodities for the one-week maturity period, which will be subject to breakage on a daily basis.

The Governor of the Central Bank, Abdul Hamid Saeed, said that the introduction of these new facilities reflects the Central Bank's continuous efforts aimed at achieving the objectives of its monetary policy and developing the money market in the UAE.

He explained that these new facilities would support the banks operating in the country in managing the daily liquidity available to them proactively, and help in matching the interest rates of the money market for one night with the base rate in normal circumstances.

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