UAE Central Bank To Launch Overnight Deposit Facility For Banks

A new facility allowing banks in the UAE to deposit surplus liquidity on an overnight basis is to be launched from July 12.

The Central Bank of the UAE (CBUAE) is behind the Overnight Deposit Facility (ODF), which is considered the first step towards implementing the new Dirham Monetary Framework announced earlier this week and will replace the issuance of one-week Certificate of Deposits.

A statement from the CBUAE said: “With the introduction of ODF, the general stance of the CBUAE’s monetary policy will be signalled through the interest rate of the ODF, which becomes the main policy rate of the CBUAE and will be referred to as the Base Rate. Accordingly, the CBUAE expects that overnight money market rates should hover around the Base Rate under normal markets conditions.

“The Base Rate, which will be anchored to the US Federal Reserve’s Interest on Excess Reserves, should also provide the effective interest rate floor for overnight money market rates.”

The CBUAE revealed it will also be providing a variant facility of the ODF to cater for licensed financial institutions that carry on all or part of their activities and business in accordance with the provisions of Sharia rules.

"Until this facility becomes operational, the CBUAE will continue to offer to these institutions the one-week commodity Murabaha-based Islamic Certificate of Deposits, which will be breakable on daily basis," CBUAE explained.

Abdulhamid Saeed, governor of CBUAE, said: "This new facility will support banks operating in the UAE in proactively managing their day-to-day liquidity and help in aligning overnight money market rates with the Base Rate in normal market conditions."