CBUAE launches new Overnight Deposit Facility for banks

By Eudore R. Chand

ABU DHABI 7 July 2020: Effective 12th July, \the Central Bank of the UAE (CBUAE), will introduce a new deposit facility named Overnight Deposit Facility (ODF), which will enable conventional banks operating in the UAE to deposit their surplus liquidity at CBUAE on an overnight basis.

“The introduction of the ODF is the first step towards implementation of the new Dirham Monetary Framework announced earlier this year,” the UAE Central Bank said in a statement carried by Wam.

It added, “The new deposit facility shall be the prime facility for managing surplus liquidity in the UAE banking sector prior to the launch of the Monetary Bills Programme and shall replace issuance of one-week Certificate of Deposits.

“With the introduction of ODF, the general stance of the CBUAE’s monetary policy will be signaled 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 said 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 Shariah 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, “The introduction of this new facility is a reflection of the CBUAE’s continuous efforts to achieve the objectives of its monetary policy and to foster money market developments in the UAE. 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.”



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