The Central Bank of the UAE is introducing a new Overnight Deposit Facility that will allow conventional banks operating in the country to deposit their surplus liquidity at the central bank on an overnight basis.
The ODF, effective from July 12, will 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", it 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, the regulator 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,” Abdulhamid Saeed, governor of the CBUAE, said.
“This new facility will support banks operating in the UAE ... in aligning overnight money market rates with the base rate in normal market conditions.”
The CBUAE will also provide an ODF variant to cater for Sharia-compliant licensed financial institutions. Until that facility becomes operational, the CBUAE will continue to offer these institutions its one-week commodity Murabaha-based Islamic certificate of deposits, which will be breakable on daily basis, according to the regulator.