UAE - Mubasher: The Central Bank of the UAE (CBUAE) has launched a new deposit facility knowns as Overnight Deposit Facility (ODF), according to a press release on Monday.
The facility aims to encourage the conventional banks operating in the UAE to deposit their surplus liquidity at the CBUAE on an overnight basis.
The ODF, which will replace the issuance of a one-week Certificate of Deposits, will also manage surplus liquidity in the UAE banking sector before launching the Monetary Bills Programme.
The new facility is part of the CBUAE's objective to implement the new Dirham Monetary Framework announced earlier this year.
The CBUAE's monetary policy will be determined through the interest rate of the ODF, which will become the central bank's main policy rate and will be referred toas the Base Rate.
The Base Rate will be related to the US Federal Reserve’s Interest on Excess Reserves (IOER) and should provide the effective interest rate floor for overnight money market rates.
Until this facility comes into effect, the CBUAE will continue providing financial institutions with a one-week commodity Murabaha-based Islamic Certificate of Deposits, which can be breakable on a daily basis.