The Central Bank introduces a new statute on reserve requirements

The Central Bank of the United Arab Emirates announced today that it will introduce a new system regarding mandatory reserve requirements for licensed financial establishments that receive deposits, starting from October 28, 2020.

The introduction of this system represents the second step in implementing the new framework for cash operations in dirhams that was announced earlier this year.

With the introduction of this new system, the maintenance of mandatory reserve balances will become more flexible, as the period for maintaining the required reserve will be extended from 7 to 14 days to facilitate short-term liquidity management. In addition, the licensed financial institutions that receive deposits will be allowed to withdraw from their reserves held with the bank. Central Bank on any day by up to 100% for the purposes of daily settlements or dealing with any fluctuations in money market rates for one night;

Provided that the daily rate of required reserve is maintained over a period of 14 days.

In the event of non-compliance with maintaining the daily rate of the required reserve during the 14-day period, a periodic fine of 400 basis points will be applied over the base rate of the Central Bank, and the level of the required reserve for demand deposits and time deposits will be fixed at the current rates of 7% and 1% , Respectively, according to Notice No. 1759/2020 issued on April 6, 2020.

Abdul Hamid Saeed Al-Ahmadi, Governor of the Central Bank of the United Arab Emirates, said: The reserve requirement is a basic tool that the central bank uses in its monetary policy to manage the liquidity of the banking sector .. The launch of this new system comes with the aim of helping banks operating in the country to manage the liquidity available to them, on a daily basis, in a manner. More flexible and efficient, in addition, the extension of the reserve requirement period from 7 to 14 days provides an incentive for banks to take advantage of the new mechanism for calculating the reserve requirement.

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